The year is 2007. I am sitting in an Ameritrade branch office, deciding how I will be rolling over my 401(k) from my old job into a new IRA. I choose 4 actively-managed mutual funds rated highly by Morningstar, and a S&P 500 index fund because this is a retirement account. I am satisfied with my choices, and move on with my life.
Fast forward to 2019. The actively-managed vs. passively-managed argument has been decisively won in favor of passive. Every financial advisor worth anything is advocating for index funds. I, myself, recommend that my family and friends choose index funds for their investments.
My IRA choices remain unchanged.
In between, I have looked at my retirement account without looking at it. Sure, I've been checking my dividends and capital gains distributions all these years, and I've even rolled over another 401(k) in 2012. But as far as actually thinking about the individual funds within the account: I haven't. All of my time, money, and efforts are directed towards a non-retirement account - an actively-managed portfolio of stocks, the discussion of which comprises the bulk of posts on this blog.
So now, I finally get around to doing some basic comparisons of relative performance between my actively-managed mutual funds and the common indexes, and the results are ALL CAPS ATROCIOUS.
My 2007 Morningstar All-Star team has been underperforming; in some cases, severely so. I immediately sell 3 of the actively-managed mutual funds, and use the proceeds to buy ETFs for the Nasdaq 100 (QQQ) and Russell 2000 (IWM). My IRA is now primary comprised of those two, and that S&P 500 index fund suitable for a retirement account (VFINX). (The fourth actively-managed mutual fund chosen in 2007 is a global equity fund. I will continue to own it, against my own better sense, until the experts say that foreign stocks are not required as part of diversified portfolio.)
I say all that to say this: when presented the choice, buy index funds and don't look back.
