Why do these two nearly identical Fidelity funds have such different performance? The answer could be key to saving more money in your 401(k):
Most 401 and similar plans offer this option, which provides a modest amount of diversification among equity asset classes as well as a built-in mechanism for gradually reducing the risk of the portfolio as retirement gets closer.
The other version is the right choice for investors. But it’s less profitable for Fidelity, sort of an “under-the-counter” product that’s rarely offered to retirement plan participants. • Active managers typically underperform their benchmark indexes. Thus their returns are usually less than those of the indexes.The academics say that the most reliable predictor of the performance of two similar funds is operating expenses.
As noted in Table 1, the actively managed fund has attracted more than $3.2 billion in assets. That’s more than five times the assets in the index fund.I think one reason is that, whether or not it is good for them, many investors continue to favor the hope that they might achieve superior performance from active management than from indexing.
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