VanWinkle
Thinks s/he gets paid by the post
Actually, here is the bottom line from Nobel laureate William Sharpe of Stanford: "Properly measured, the average actively managed dollar must underperform the average passively managed dollar, net of costs."
An important point here is that "costs" are not limited to fund fees. There are trading costs of course, but the biggest cost is probably the cost of taking and abandoning large positions. Ask prices move up for large buyers and Bid prices move down for large sellers. Read "Flash Boys" by Michael Lewis to understand the worst case.
Here's the 1991 paper: https://web.stanford.edu/~wfsharpe/art/active/active.htm Just three pages and well worth investing a little time to understand.
Sure it does. How can you be wrong about your personal preferences? It's not a lot different from folks who allocate a small percentage of their portfolio to stock picking, knowing that it's pretty much like going to the casino. And ... about 30% of actively managed funds beat their benchmarks every year. So your chances of winning are at least 30%.
I keep it in a tax deferred account, so the only tax consequence is internal in the fund. I have to keep some equities in my IRA for balance of my allocation. I agree there are other costs inside an active fund, and have studied this in the writings of William Sharp and countless books I own and have read. Thanks for the reminder of being wrong 70% of the time.
VW