Actively Managed Funds & Costs Involved
Many investors choose to invest their money in actively managed funds. These funds are expensive because of fund management and brokerage charges. While these costs look insignificant percentage wise, eventually they eat away
a substantial part of your profits.
For instance, if you had invested $10,000 in 1980, by 2005 you would have 70% less if you invested in an active fund rather than an index fund, because of these charges.
These costs are bearable if the fund performs well. But are these high returns sustainable over a long period?
Also, buying on low and selling on high is never a sustainable strategy. It might work in the short term, but it is far from sustainable in the long run. The strategy cannot produce more returns than what the companies are
For example, if the stock price of a company is consistently rising without no substantial correlation to its earning, the stock price will take a beating in the long run. Now, if you add high costs to these funds, it may generate
significantly low returns compared to low-cost index funds.