Last year, roughly 93% of new money “went into the cheapest of the cheap … the least costly 10% of all funds,” the report said.
The first favorable trend for investors results from a change in the industry. The second, as we just saw, results from a change in investor behavior.
3. Here’s another good trend, and it follows from No. 2: Investors are increasingly focused on asset classes instead of individual stocks.
Asset classes are much less risky than individual stocks, without sacrificing anything in terms of expected return.
4. So far this century, we’ve seen a variety of resources (if that’s the right word) emerge with the intention of helping individual investors.
The grassroots Financial Independence Retire Early (FIRE) movement has sprouted local chapters throughout North America, in every U.S. state plus eight in Canada, devoted to helping each other find ways to cut current expenses, boost savings, and invest well.
A nonprofit organization in California that I recently wrote about , Next Gen Personal Finance, wants to persuade every high school in the United States to require a semester-long class in personal finance as a graduation requirement.
They also have a lot of excellent educational resources for teachers and parents available free online.
More financial advisers are becoming fiduciaries by voluntarily assuming legal responsibility for recommending only the products and services that are demonstrably in the best interests of their clients.
(The Morningstar report alludes to this, saying investors are increasingly choosing such advisors instead of traditional brokers who have no such legal obligation.)
More authors and educators are preaching the value of lower expenses, index funds, and fiduciary advisory arrangements.
5. Increasingly popular index funds continue to outperform the vast majority of the actively managed funds in their asset classes.
In the 15 calendar years ended last Dec. 31, the S&P 500 Index outperformed 90.5% of all actively managed U.S. large-cap funds, according to analysts at S&P.
Among 13 specific asset classes, the percent of funds that underperformed their benchmark indexes were similar, ranging from a low of 81.4% for large-cap value funds to a high of 95.2% for mid-cap blend funds.
Other statistics from this report are interesting.
Mutual funds are allowed to advertise that (when it’s accurate) their performance is above average compared to their peers. But “better than average” isn’t necessarily impressive when nine of every 10 funds fails to even meet the /zigman2/quotes/210599714/realtime SPX +1.61% .
Over the past 15 calendar years, the top 25% of actively managed U.S. large-cap blend funds returned 8.9% or more. But one of every four such funds returned less than 7.3%, according to S&P’s statistics.
All these points add up to one happy conclusion: Investors like us get to keep more of the returns from the equities in our mutual funds.
Want to know more? Check out my latest podcast , “How confident can we be in past performance?”
Richard Buck contributed to this article .