that hovers around 10%. While there are plenty of mutual funds that beat both that average and the S&P 500 year after year, Hallam encourages his reader to zoom in further to discover just how rare — and misleading — such a feat truly is.
If financial advisors worked on a volunteer basis and mutual funds were free to run, he notes, they'd triumph over index funds about half the time. But until that fantasy becomes a reality, Hallam estimates that an actively-managed mutual fund will need to beat the S&P 500 by an average of 4.
Each charge represents what may feel like a tiny fraction of your total holdings. But as Hallam points out, they add up quickly, stacking up towering odds against an actively-managed mutual fund ever beating a low-fee index fund.Hallam quotes a whole host of financial experts, Nobel-prize winning economists, and some of the richest people on the planet to substantiate his claims, but one group of folks is notably absent: financial advisors.
That's because every time they do, they're missing out on all the fees outlined above. There isn't much to do with index funds except hold them long term, which does little to pay your money manager's bills. If you happen to be working with a financial advisor who touts index funds for their clients, hold onto them with both hands. Because that's someone who's working for you and your money instead of their own bottom line. But if you're being nudged toward actively-managed mutual funds, Hallam recommends taking that advice with a healthy dose of skepticism — and I'm inclined to agree with him.
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