| The stock market is an extremely popular place | | | | not unusual for funds to give high double digit |
| for people to put their savings. In the long run, | | | | returns every year. Of course, once the dot com |
| stocks have outperformed both bonds and | | | | stocks crashed the funds went along with them. |
| savings accounts. But many people don't want the | | | | Fund managers find it very difficult to outperform |
| complication of owning individual stocks. Instead, | | | | the market in the long run. Some years they |
| they purchase mutual funds. These funds pool the | | | | might beat the benchmark handily. But this is |
| money of many investors. In this way investors | | | | usually done by overloading in a sector, and once |
| are able to get the diversity and stability they | | | | this type of stock falls backs to earth the fund |
| crave without putting in millions of dollars into the | | | | crashes. So much of this so-called financial |
| stock market. | | | | "wizardy" is merely due to cycles. |
| However, there has been a very big trend in | | | | If you look at performance in the long run (longer |
| recent years - the growth of index funds. Instead | | | | than 10 years), you will find that very few mutual |
| of hiring the best talent available and try to | | | | funds outperform their benchmarks. In fact, they |
| outperform their benchmarks, they merely try to | | | | will actually under perform them because of their |
| beat them. What has caused this? | | | | fees. This is why index funds have become so |
| Many "hot funds" don't stay hot for long. For | | | | popular. Investors have realized that its almost |
| example, during the tech bubble, growth funds | | | | impossible to beat the market in the long run and |
| heavy in technology did extremely well. It was | | | | have instead focused on keeping their costs low. |