Use broad index funds instead of actively managed funds as the long-term core holding (the part of your money you hold for the long run)

Cost

Free. The price is that you give up the chance of "picking a star fund manager." The hard part is that when the index falls, you also have to ride it down with it and not bail out midway.

What you get

The combined portfolio of actively managed U.S. stock funds is close to the market portfolio: the stocks these funds hold together are about the same as the whole market. But the high cost of active management turns, unchanged, into lower net returns for investors (the return you receive after fees). The study used bootstrap simulation, randomly reshuffling the results again and again to see how far luck alone could go. The results show that very few funds produce excess returns large enough to cover their costs: the part a fund earns beyond the market does not reach the fees it charges (United States, published in 2010). S&P Dow Jones Indices (标普道琼斯指数公司) counts this every year: in 2024, 65% of actively managed U.S. large-cap stock funds underperformed the S&P 500. It has counted for 24 years, and on average 64% underperformed each year. In the 15 years to the end of 2024, there was no category in which most actively managed funds outperformed

Notes

Disputed: one paper retested this conclusion. It pointed out that the Fama-French method of repeatedly resampling the data did not resample enough. By its calculation, even if the extra a fund earned is really large, it may be judged "indistinguishable from luck." So the conclusion that "almost no fund has skill" may have been stated too strongly. China's numbers are not as one-sided as America's. According to S&P Dow Jones Indices statistics through June 2025, the share of actively managed A-share large-cap funds that underperformed the S&P China A 300 Index was 60.5% over 1 year, 69.6% over 3 years and 50.8% over 5 years. The statistics go only to 5 years, and no longer figures are available. So in China, whether active funds fail to beat the index over the long run is not settled, but the point that index funds have low fees still holds. This is not investment advice.

Evidence grade

B : Supported by research but without a precise number, or based on small or single studies.

Sources

1. Fama EF, French KR (2010). Luck versus Skill in the Cross-Section of Mutual Fund Returns. The Journal of Finance 65(5):1915-1947. https://doi.org/10.1111/j.1540-6261.2010.01598.x
2. S&P Dow Jones Indices (2025). SPIVA U.S. Scorecard Year-End 2024. https://www.spglobal.com/spdji/en/spiva/article/spiva-us/（官网拒绝自动抓取，数字按 2025-05-12 的存档核对：https://web.archive.org/web/20250512071051/https://www.spglobal.com/spdji/en/spiva/article/spiva-us/）
3. S&P Dow Jones Indices (2025). SPIVA Asia Ex-Japan Scorecard Mid-Year 2025（Report 1a，China Large-Cap 对 S&P China A 300 的跑输比例：1 年 60.5%、3 年 69.6%、5 年 50.8%）. https://web.archive.org/web/20251103165922/https://www.spglobal.com/spdji/en/documents/spiva/spiva-asia-ex-japan-mid-year-2025.pdf（官网拒绝自动抓取，按存档核对）
4. Harvey CR, Liu Y (2022). Luck versus Skill in the Cross Section of Mutual Fund Returns: Reexamining the Evidence. The Journal of Finance, 77(3). https://doi.org/10.1111/jofi.13123（争议方）

Translated from the Chinese original. Original book, section 5, tip 17. This section is about money and spending. It is general information, not financial or investment advice. Content may be out of date and rules differ by place. When you actually deal with an agency, a doctor or a court, follow what local officials, doctors and lawyers tell you. Disclaimer