Sunday, April 29, 2007

Buy and Hold Index Funds

From today's 's NY Times Business Section:

The reason that so few mutual funds beat the market over the long term is that investors shift too much money into the successful ones. As a result, these funds’ managers quickly become swamped with more money than they can invest profitably, causing performance to suffer.

The data certainly provide strong support for this prediction: The mutual funds that have beaten the market in the recent past will rarely be able to keep doing so for longer than a few more months.

Don't even consider holding actively managed mutual funds unless you’re willing to switch funds often. All other fund investors should simply buy and hold an index fund for the long term.

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