Advisors Weigh In On Index Funds For Boomers

The reason, he explains, is that there is more analysis of that market, and it is more efficient than small- or mid-cap stocks. For those sectors, he continues, it is more possible for a good active manager to find and exploit opportunities.

So, a good approach is to use the S&P 500 Index as a base and then use actively managed funds for mid- and small-cap sectors, Kays adds.

One CFP practitioner who is not as enthused with index funds is Bob Fitzsimmons, a CFP practitioner. One reason he offers is the availability of actively managed funds that he says can outperform prominent indexes. For clients with large investments in an actively managed fund, breakpoints are lower, he says.

Fitzsimmons says that for advisors who rely on commissions for their compensation, index funds do not, for the most part, compensate well.

But Brian Mattes, a spokesman for Vanguard Group, Valley Forge, Pa., a larger index fund provider, says that for the consumer, an index fund offers a low cost of .18% compared to 1.5% for general equity funds and 2% if there is high turnover.

According to Mattes, only one in four managed funds outperforms index funds. “Too many people feel that settling for the markets return is mediocrity,” he says.

But, he adds, that while investors in their 20s can recover from a blunder, for baby boomers, “thats going to be an ouch!”

Reproduced from National Underwriter Life & Health/Financial Services Edition, August 25, 2003. Copyright 2003 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.