[Schneed10]

Originally Posted by saden1

With all the discussion about money related issues that has been going on I thought this interview with Charles Schwab might interest some folks in here. Also, I find this site very informative. I particularly like this article.

It's tremendous advice by Schwab to buy index funds. First off, they're diversified. Secondly, they have the lowest expense ratios out there, which means the investment company takes the smallest bite out of your investment.

An actively managed mutual fund can cost you anywhere from 0.5% to 3.0% each year. If you get one with a 1% expense ratio, and the fund earns 15%, that means you only earn 14%. Index funds from Vanguard or Fidelity only cost you 0.2% or so in expenses. Great deal.

It's hard for even the best stock pickers to beat the market over the long haul. Lots can do it for one year, fewer can do it three in a row, even fewer can do it five in a row, and hardly anyone can do it 10 years in a row. The index funds are there simply to emulate the market. It costs very little to run the S&P 500 index fund; you just simply buy all the stocks in the S&P 500. The actively managed funds hire all these analysts to research stocks, trying to outperform the S&P 500. But very few can do it over the long term, and all those analysts cost you money in the form of a higher expense ratio.

Index funds are definitely your friend. There are good buys for actively managed funds too, but if they're charging you more than 1%, steer clear IMO. Fidelity has some real good ones that charge 0.7% or so. But by and large, your best off with index funds, whether it's a stock index fund or a bond index fund.