| The world of stock market investing is extremely | | | | Lets not forge about fees. All mutual funds |
| glamorous. This is why many everyday investors | | | | charge an annual fee percentage. This is often |
| have chosen actively-managed mutual funds to | | | | referred to as the expense ratio. Some also |
| handle their investments. They try to get in the | | | | charge fees to compensate brokers for |
| hot fund that had amazing returns last year. | | | | marketing them (front-end load funds). These |
| Unfortunately, this often leads to inferior | | | | fees might seem small in the big picture. But |
| investment returns. | | | | remember that very few funds outperform the |
| The stock market is usually portrayed as where | | | | market in the long run. And the effects of |
| someone smart can make a good amount of | | | | compound interest makes these small fees add |
| money. So why not have a financial wizard | | | | up to a large number over time. |
| manage your investments? This is the sales pitch | | | | This is why retail investors are increasingly |
| of mutual fund companies. Unfortunately, things | | | | favoring no-load index funds. Instead of focusing |
| are not so simple. Many funds will be able to brag | | | | on beating the average these funds try to make |
| about their investment returns over the past few | | | | the average while keeping fees extremely low. |
| years. But these numbers are often due to luck. | | | | And since the vast majority of funds |
| It is very important to note that very few | | | | underperform the average in the long run, the |
| managers outperform the market in the long run | | | | retail investor that invests in these funds will |
| (over ten years). | | | | outperform is less informed peers. |