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Active management rarely beats the market from "summary" of Common Sense on Mutual Funds by John C. Bogle

The idea that active management rarely beats the market is a critical concept for investors to understand. Many investors are drawn to actively managed funds by the promise of outperforming the market and achieving higher returns. However, the reality is that the majority of actively managed funds fail to beat their respective benchmarks over the long term. This phenomenon can be attributed to a number of factors. One key reason is the higher fees associated with actively managed funds. These fees can eat into investors' returns and make it even more challenging for fund managers to outperform the market consistently. Additionally, the constant buying and selling of securities by active managers can result in higher trading costs, further eroding returns. Another factor to consider is the difficulty of consistently predicting which stocks will outperform the market. While some active managers may have periods of success, research has shown that this success is often due to luck rather than skill. Over the long term, the odds of consistently beating the market through active management are slim. In contrast, passive investing, which seeks to match the performance of a specific market index, has gained popularity in recent years. Passive funds typically have lower fees and turnover rates compared to actively managed funds, making them a cost-effective and efficient way to gain exposure to the market.
  1. Investors can make more informed decisions about their investment strategy. While there may be a place for active management in certain circumstances, it is essential for investors to be aware of the challenges and risks associated with this approach. Ultimately, the data suggests that for many investors, a passive investing strategy may offer a more reliable path to achieving their long-term financial goals.
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Common Sense on Mutual Funds

John C. Bogle

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