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Why We Invest in Actively Managed Mutual Funds


The diagram admittedly leaves out the whole “everybody thinks that they’re above average” psychological aspect. But I think that it still conveys one important part of the issue.

If you like the diagram, feel free to use it on your own blog.

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  1. Nail. On. Head.

  2. Nice diagram. It also plays on the “expertise” card – which I’d argue is only justified in some cases. Eg., the average person who doesn’t know the difference between a bond and a stock – I’m amazed at some of the mutual fund ads I see around town.

  3. if only that purple line were green…

  4. “if only that purple line were green…”

    Haha, indeed. 🙂

  5. The diagram makes a powerfully important point.

    But this point applies re more questions that just picking mutual funds. It also applies re the question of whether there is a need to lower one’s stock allocation when prices go insane. We don’t hear about the dangers of investing passively nearly as much as we would if the financial press was not dependent on advertisements from The Stock-Selling Industry to survive.


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