The Ignorant Investor

Seen on Yahoo in content supplied by Investors Business Daily:

Many mutual fund investors buy index funds on the belief that most fund managers cannot beat the overall market or a specific segment of the market.
That is not always true, but index funds have remained popular. If anything, index funds tend to have lower costs because there is less money management involved and less turnover than in most actively managed funds.

You'd think that a newspaper dedicated to investing would know a little more about the industry they're covering, right? The first paragraph misstates the claims index fund companies make: it's not that the indexes always beat most managers; rather, the claim is that over the long term most managers do not exceed their benchmark indexes. That's less of a claim, really, than an established fact. But, whatever. IBD is a trade publication, so it's going to mirror the attitudes of its readers, many of whom actually manage money for a living and have a real reasion to dislike index funds.

I also liked, "If anything, index funds tend to have lower costs." Well, duh. If an index fund doesn't doesn't have a fraction of the expense ratio of the average managed fund in the same class (an S&P 500 index fund should run no higher than .15-.20% vs. 1% for a managed large-blend fund), it's a sign that the company is trying to rip off it's investors. A major part of the advantage that index funds have in long term returns over their managed brethren is that savings of .75%-2% per year, every year. Surrender that advantage by investing in a high-cost index fund, you may as well put your money into a managed fund.