No Marshmallows, Just Term Papers
1) Active and Passive Investment
Due to the unstable market condition and the volatility of the overall market, investors should focus on more stable and less risky investment – Index funds.
Despite the rising and falling market conditions, the returns and dividends are roughly matched with the overall market. It is more predictable for investors as their investment follow the same trend of not earning much better than the index but do not lose more than the index either.
However, investors have to face more risk with an actively managed fund, because investors equally likely to earn less if the manager of your actively managed fund makes bad investment decisions.
2) More predictable than other active funds - Long term strategy, growth in a steady based
According to Vanguard, for the 10 years leading up to 2007, the majority of actively-managed U.S. stock funds underperformed the index they were seeking to outperform. This is a predictable and highly secure investment that are best suited for investors looking towards ‘long term’ investments strategies, having confident that shares would outperform most other asset classes in the ‘long term’ by allocating share investments in a way that removes the chance of active fund managers in achieving a return less than the overall market average based on Australian ASX300 Index.
3) Low cost
Low cost of entry and exit fees, as well as excluding the ongoing fee for investment
Eg: ETFs have the lowest cost of operation, even half the annual expense of index mutual funds. (managed funds).
4) Ethnical issues: Conflicts of interest
Active managed funds manager tend to seek for extra returns through more frequent ‘buys’ and ‘sells’ investments in comparison to index fund, results in taxable capital gains, known as turnover.
However, ETFs that have been introduced lately is very tax efficient, seeking to minimize capital gains by exchanging those stocks being sold out from the index...