How do indexes beat most actively managed funds?
Historically, most mutual funds have failed to sustain a level of performance above that of standardized indexes such as the S&P 500 and S&P MidCap 400. First of all, active management tends to be more expensive. The cost of research, portfolio management tools and transaction expenses eat into the returns of actively managed funds. For taxable accounts (most non-retirement funds), capital gains taxes can further erode a shareholder s investment returns. Actively managed mutual funds typically generate capital gains by buying and selling more often than index funds.
