Help me figure out why index funds are better...

[aida2003]

Name***(Load)*** YTD *****1y***** 5y**** 10y
VTSMX** (N/A) **(-4.03)** (-5.45)** 8.44** (-1.15)
VIVAX** (N/A) ***(-15.5) *(-22.67)**30.39**(-3.31)
ABWAX**(A) *****(-9.59)* (-13.05) *22.55*** N/A
FNIBX** (B) *****(-8.56)**(-2.87)** 59.45**** N/A
EMHSX**(B) *****(-5.01)**(-19.03)***0.69** 159.13
EACFX** (C) *****(-9.77)**(-12.57)** 18.26* 31.85

I was just curious whether these performances are AFTER paying loads, selling fees and taxes...?

 

[yuag]

I was just curious whether these performances are AFTER paying loads, selling fees and taxes...?

aida,

I don't know. My guess is before. I basically just went to Google Finance and plugged in the symbols and google spat out numbers of their returns over time periods. MY guess would have to be that's returns before taxes and fees.

 

[Htown Harry]

Two other books / authors I'd strongly recommend:
A Random walk down wall street - Burton Malkiel
Anything by Larry Swedroe

I haven't gotten to Malkiel yet, but I'll second the Swedroe recommendation.

2003's The Successful Investor Today is available on Amazon's bargain table right now. I picked it up and found it very much on target to the OP's question.

Excerpt here:

Amazon Online Reader : The Successful Investor Today: 14 Simple Truths You Must Know When You Invest

 

[Surfdaddy]

I'm also a fan of index investing.
In the early 1990's I read all the hot fund articles and invested in the hot funds. Guess what? The funds that had done the best *before* I invested underperformed their indexes *after* I invested!

That's when the appeal of matching index performance began to look attractive.
You also have higher turnover rates in actively managed funds, which means more of your gains go to taxes. This doesn't show in the percentages that you posted and will depend upon your tax bracket.

Look at it like this: You have 100 people flipping coins. After 7 flips, ONE person flipped 7 heads! You say, "I'll invest with him, he has done great". And he proceeds to flip 50% heads from there on out. Was his 7 consecutive heads luck, or skill? How did your advisor choose the active funds you listed above? Did he pick the *hot* funds? What do you think the chances are that these funds will outperform the indexes into the future? Numerous academic studies have shown that few funds can continue their hot performances.

 

[2B]

I normally invest with a financial advisor through a large brokerage, and would like to weigh my options. Based on all the advice I've been given, I should eventually make the switch when the time is right and mainly invest in index funds, as it's the easiest, 'set it and forget it' way to go. Anywho, I just put together a little chart (got the numbers from Google Finance) of 2 index funds (Vanguard Total Stock Index, Vanguard Total Value Index) and compared those to 4 Loaded funds I'm currently invested in. Granted they're not as diversified as the two mentioned above, but then I compared the YTD, 1y, 5y and 10y returns for all of the funds.

What confuses me, is for the most part, the further out you go, it appears that the loaded funds appear to perform better. is there something I'm missing? (sorry for the terrible formatting, I did it to try and make them line up better.)

Name***(Load)*** YTD *****1y***** 5y**** 10y
VTSMX** (N/A) **(-4.03)** (-5.45)** 8.44** (-1.15)
VIVAX** (N/A) ***(-15.5) *(-22.67)**30.39**(-3.31)
ABWAX**(A) *****(-9.59)* (-13.05) *22.55*** N/A
FNIBX** (B) *****(-8.56)**(-2.87)** 59.45**** N/A
EMHSX**(B) *****(-5.01)**(-19.03)***0.69** 159.13
EACFX** (C) *****(-9.77)**(-12.57)** 18.26* 31.85

Prior comments about comparing apples to oranges apply. What you probably didn't include was the loads you'd pay that would reduce your investment returns. The reported returns you get from Morningstar and certainly from your FA would have neglected to include the load.