As a business review guy I've done some reading up on mutual funds. Here's what I've found....

Jim Cramer says "In study after study, year after year, it has been shown that the vast majority of actively managed mutual funds underperformed index funds."

With "actively managed" mutual funds the client typically pays upwards of a 5.75% front end "load" fee to invest in the fund. If the broker / adviser doesn't tell the client that there's a load fee then the client might not even notice because that "load" fee is simply subtracted from the fund purchase price.

Like annuities, mutual funds are not trading vehicles.

Even no-load "actively managed" mutual funds are expensive. They simply make up for it by having high annual management fees, described below.

"Actively managed" mutual funds have annual "expense ratio" fees that are often 10 times higher than index funds like VOO and AGG. VOO and AGG have super low annual expense ratio costs of only 0.05% and 0.07% respectively.

"Actively managed" mutual funds also usually have much higher turnover ratio costs than index funds like VOO and AGG.

To research a mutual fund's expense ratio and turnover ratio visit Yahoo Finance click "Profile" from the left column.

Because of the above described loads and/or high fees and high turnover ratio costs, it is very difficult for the fund managers to beat their benchmark. In fact according to Peter Lynch "The statistical evidence proving that stock index funds outperform between 80% and 90% of actively managed equity funds is so overwhelming that it takes enormously expensive advertising campaigns to obscure the truth from investors.”

This study found that less than 3 out of every 100 mutual funds outperformed the S&P 500 index, which is replicated by funds like VOO and SPY.

Jack Bogle (from the Vanguard fund group) says that it is a mathematical certainty that over a lifetime you cannot beat the indexes with "active management".

What if I hand pick the actively managed mutual fund that has done well over the last 5 years or 10 years? Studies have shown that this won't give you any advantage.


I am a former client of C Thomas Thames. Anyone with eyes can read that this site is about my review of C Thomas Thames, the investments he sold me and a discussion about various other issues of public debate. Tom has made the assertion that someone might, I would presume, be confused into thinking that this site is run by Tom himself, run by an investment professional, or provides personalized investment advice, which is completely false. It is obvious to anyone that the content offered herein is not personalized recommendations to buy, sell or hold securities, and any content on this site does not constitute individual investment, legal, tax or other professional advice. As they say, always consult with an independent, objective, fee-only fiduciary adviser who legally works for you before making financial decisions. This goes without saying.