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  1. #1
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    mutual funds or index funds which do you prefer

    I am new to this but I have opened a couple of mutual funds, IRA, and gonna open a roth soon too. But now I hear that index funds are better. I was reading a book by john bogle and he seems to recommend index funds over mutual funds. Also if I want to buy an index fund would I go to my financial planner (edward jones) or do I do this on my own and where and how do you purchase an index fund. Thanks in advance

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  3. Stocks/Investments Moderator boneil's Avatar
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    #2
    mutual fund= a basket of assets like stocks or bonds that are actively managed to try and outperform the market or reach certain returns, or targets.
    index fund= a basket of all stocks in an index to track that particular index. Like the Dow Jones or S&P 500

    You give money to edward jones, they pool that money into the funds you decide to buy. Depending on your time horizon and risk appetite, would depend on the fund you want. If you are many years away from retiring, I would go with an index fund. Not many funds outperform the indexes.

    You could open an IRA or Roth or other type of account with any online brokerage and buy different funds yourself. But like with anything there are commissions and fees. You should probably stick with your planner and learn more about investing before doing it yourself. But once you learn, you'll realize it's pretty easy.
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  4. Member
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    #3
    I will add that active management has its place. I like active management for fixed income mostly. Also, a lot of the equity funds are so large that they are basically index funds with fees especially the ones pushed by Jones. During extreme bull markets active management will rarely beat indexes. It is during flat markets where they should show some promise. This promise is measured by alpha. Good luck.

  5. Member TampaJim's Avatar
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    #4
    IMO, overall balance is the correct approach ... index funds, mixed funds, bonds, cash, real estate, etc.
    If you had to pick just one - place your bets on a Target Date fund to match your projected retirement.
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  6. Member
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    #5
    I like to use active funds in emerging markets and small cap and index for large caps. I feel like with emerging markets and small caps that you really want to have someone weeding out the stocks that are suspect. That is just my personal theory though.

  7. Member keng8554's Avatar
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    #6
    Time and Time again it has been shown that active management will lose to indexing on average over time. This is thought to be related to cost. Basically, over time active managers are not able to create value greater than their fees and increased tax burden. The managers who are able to beat an index for 1 or a few years will be handicapped by their growth. When a actively manage fund becomes large and popular it essentially becomes an expensive index fund. The expense eats the returns.

    Also, there is no consistent way to pick 10-25% of actively managed funds that will best an index. Furthermore, that active fund is unlikely to repeat it's performance the next year.
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  8. Member
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    #7
    Do yourself and open an account at a low cost financial institution like Fidelity or Vanguard. They are so much cheaper on expenses for mutual funds, and they have access to ultra low expense ETFs--exchange traded funds.

    My cousin's son is a broker for Edward Jones, and I do no business with him. Edward Jones is too expensive to do business with, and their brokers are not very objective as financial counselors.

    I have most of my IRA Rollover funds with Fidelity in 5 of their higher ranked mutual funds. The idea is to have a diversified portfolio--not too much in one market segment. Most is in stock funds, but some is in bond funds!

  9. Member
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    #8
    My experience with EJ is, that they really push American Funds. They will even give you a up front discount purchase fee for a given amount of an investment. If you purchase say, five different AF you will find that they really duplicate your allocation throughout the five funds. If you invest in class A Funds the expense fees are really high too. The best thing going in my mind is about five Vanguard Funds. You can cover the whole spectrum with this allocation, plus the annual expense ratio will be very low.