Index Funds 1, Active Managers 0

I was catching up on podcasts this morning and my mp3 player served up this gem from NPR's Business Story of the Day podcast:

Despite Losses, Star Investor Trusts In Stocks

David Swensen, manager of Yale University's endowment, says that individuals should be investing in index funds:

... because most so-called actively managed mutual funds — the ones that pay managers to pick stocks — charge such high fees that the fees more than eat up the added returns they're able to achieve, he says. So, in effect, you're losing money by paying for this active management, Swensen says.

Swensen has done some research on this point. He and others have found the odds are 100 to 1 that you're better off in an index fund.

Swensen's track record isn't bad. Yale's endowment is down 25% in a market that's down 50% or more. But, he has a staff to help him with investment research. For individuals with less time to devote, an index fund is the way to go.