You aren't good at picking mutual funds!

Anyway, in those articles, I pointed out in 9/10 cases, buying an actively managed mutual fund is a sucker's game. I suggested index funds as a better way to start investing.

Now check out what Jonathan Clements, the fantastic personal-finance writer from the Wall Street Journal, has to say.

Suppose, at year end 1969, that you had ranked diversified U.S. stock funds based on their 10-year performance and then bought the top 25%. Result: Over the next 10 years, you would have lagged behind the S&P 500, according to calculations using Lipper data by the Bogle Financial Markets Research Center in Malvern, Pa.

Similarly, the top performers from the 1970s were stock-market laggards in the 1980s, and the top performers from the 1980s fell behind the S&P 500 in the 1990s. And the current decade isn't looking too good, either. The top 25% of stock funds from the 1990s have fallen 5.2% a year during the past five calendar years, trailing the S&P 500's 2.3% annual loss.

• We are very, very bad at choosing mutual funds (just as we are generally bad at picking stocks, actually)
  
• Past performance is no indicator of future performance. Yes, every fund writes this on all their ads, but everybody pooh-poohs it and doesn't really care. IT REALLY IS TRUE.
  
• Buying an actively managed fund (where you're paying 2-3% for someone to manage your money) cuts into your profits even more, making it unlikely you'll even beat the market (a relatively dim goal for sophisticated investors). Remember, about 85% of actively managed mutual funds fail to beat the market.
  

Although I drill this point in my classes, it seems that the best audience for this advice is your parents--and we all have parents who are in actively managed mutual funds. Talk to them and you'll be surprised what they know about their own investments!

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