Scott On Money

Index funds are a valuable tool but they are not the be all, end all of investing. People like them for the low fees. Low fees are great. People enjoy the ease that they bring to investing. I like easy. People point out that many mutual funds don’t perform as well as the many index products (while charging fees). This is both true and shameful.

You should look at any investment by its returns less fees. If an investment has higher total returns that is a good indicator that it is a better investment (even this is not universal, you also need to factor in risk among other things).

Here is an example.

The Vanguard 500 fund (VFINX) is an S&P 500 index fund. It has pretty much matched the S&P with an 11.72% annualized return over the last three years. It has a 0.18% annual fee.

The Janus Contrarian fund (JSVAX) is a large cap fund that is managed. Its annual fee is 0.96%. It has an impressive 22.11% annual return.

As you can see over this time frame the Janus fund wallops the Vanguard fund with returns net of fees 21.15% versus 11.54%.

I don’t own either fund and I’m not recommending either of them. I would say you can clearly achieve better returns than an index fund.

I wish you great returns!