Why this strategy has been a boon for investors over the last decade
Assets in "passive" choices — index mutual funds and exchange-traded funds, or ETFs — have quadrupled since 2010.Their lower cost has had a ripple effect across the industry, which has been a positive for investors.
"From an investor's point of view, the most meaningful effect [of the trend] is that it's brought fund fees under ever-more scrutiny," said Ben Johnson, global director of ETF research at Morningstar."Investors are realizing that the idea of 'if you pay more, you get more' isn't necessarily true — and that the more you pay, the less you get in returns," Johnson said.
With actively managed mutual funds, on the other hand, gains or losses depend on the investment choices of the fund's managers. There are some differences among the funds. For example, mutual funds — whether actively managed or the index version — can only be bought and sold once daily, after the market's 4 p.m. ET close. ETFs, on the other hand, trade throughout the day like stocks.
In contrast, that median fee for actively managed mutual funds was 0.96% — more than double that of their passively managed brethren, although down from 1.17% in 2010.
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