The Ten Percent Solution

 

believe that it may be easier for them to maintain that performance."

"But the other fund must have slightly better managers, though, and so—"

"Shut up, Tom," Roy said, diplomatically closing off our discussion of expense ratios.

"Any more points, Roy?" Cathy pressed on amid the laughter.

"Stay away from mutual funds that use complicated strategies. Generally speaking, the trickier the fund, the lower the returns. Option funds, future funds, commodity funds—they all have two things in common: They sound sophisticated and they usually underperform. Remember, value and growth, they're the keys. Find a fund manager who emphasizes sound and simple principles. That's the ticket!

"Finally, I want to re-emphasize the importance of a good long-term track record. Anybody can get hot for a few years, but if someone has had superior rates of return for a fifteen- or twenty-year period, that's a good indication that he knows what he's doing . . . Oops, sorry, Cathy, I mean what she's doing . . ."

"I read somewhere that most fund managers don't per-form as well as the market over the long term. Is that really true?" I asked. "The article suggested that index funds are a no-brainer way to do at least as well as the market."

"A no-brainer approach?" Tom jumped in. "Sounds right up your alley, Dave."

"Well, it's not exactly a no-brainer approach," Roy in-terjected. "Many experienced investors use indexing as the core of their investment strategy. Dave, since you brought it up, do you know what an index fund is?"