There has been a lot of talk lately to the effect that index funds are the only sensible way to invest. I’ve even come across investors who seem to confuse expense ratios with total returns, as if low fees, not profits, were the holy grail of investing. I’ve been writing about investing for about 25 years, and I’ve seen too many firms, investment styles and managers go from being the only way to invest to being the worst possible way to invest. That’s why, although I’m a fan of indexing, I also think there’s a place for active stock picking in your fund portfolio, whether you’re investing for retirement or already in retirement.
But if you want to invest in actively managed funds for the long haul, you must remember that fund managers have to differ from the market indexes to beat the indexes. Unfortunately, following a different path means that even the best funds will go through extended periods—often two or three years at a stretch—when they lag their benchmark.
Continue reading the full article on Kiplinger.com here.