Index funds, such as the S&P 500 remove much of the guesswork out of investing.

Index funds, such as the S&P 500 remove much of the guesswork out of investing.

When it comes down to it theres really only two types of mutual funds.
Actively managed mutual funds and Index funds.

Actively managed funds are run by a professional manager whose job it is to get the highest return on their client's behalf.
Index funds, on the other hand, are managed passively usually by computers bypassing the need for a manager.

The stated objective of actively managed funds is to beat the market. Unfortunately it's rarely the case.

Theres an actual person involved. A team of them in fact. That's a real comfort for some.
The unfortunate truth is that all this extra managerial oversite generally comes at the expense of both considerable underperformance in general and cripplingly high fees.

Index funds, conversely have no such management, at least not at the level of a managed fund.
These are funds designed to mirror the market as exactly as possible.
And they do.

So should you use Index funds or actively managed funds for building wealth? None of this is investment advice. Invest at your own risk.

Here at BCS our bias is clear.
As a wealth building vehicle, within a retirement plan or one's personal investments nothing beats long term investing in Index funds like the S&P 500.
Its rare that anything actively managed even comes close. Simply put, index funds have beaten their actively managed counterparts virtually every year.
According to Morningstar, from 2014 to 2023, only 25% of actively managed funds beat their average indexed peers. Simple put, Index funds just traditionally outperform.
There are any number of reasons this could be. Were not investing in excuses.

As bad as all this there's a much worse issue involved with actively managed funds.
FEES.
Unlike Index funds whose fees are as low as 0.03% 
Actively managed funds average around 1.37%.
How bad is that?

This bad.
A few quick examples to better illustrate the effects they have on your financial bottom line.

Index Fund. (S&P 500): For all the examples we will use the exact same numbers except of course the expense ratio.
S&P 500. Expense Ratio: 1%. $3000 per year contribution. Duration: 30 years. Return rate: 8%.
Total before fees: $367,037.60. Total minus fees: $364,922.55.
 Cost of fees: $2,115.05.
Fees as a percentage: Of your 401k went to fees.
Compare this example against the examples given below. Particular the amount of these long-term expense-ratio AS A PERCENTAGE of the overall gains. In some cases it's shocking.

Mutual Fund 1: Expense Ratio: 1%. $3000 per year contribution. Duration: 30 years. Return rate: 8%. Total before fees: $367,037.60. Total minus fees: $303,219.12.
Cost of fees: $63,818.48.
Fees as a percentage: Of your 401k went to fees.

Mutual Fund 2: Expense Ratio: 1.25%. $3000 per year contribution. Duration: 30 years. Return rate: 8%. Total before fees: $367,037.60. Total minus fees: $289,239.09.
Cost of fees: $77,798.51.
Fees as a percentage: Of your 401k went to fees.

Mutual Fund 3: Expense Ratio: 1.50%. $3000 per year contribution. Duration: 30 years. Return rate: 8%. Total before fees: $367,037.60. Total minus fees: $275,967.69.
Cost of fees: $91,069.91.
Fees as a percentage: Of your 401k went to fees.

Mutual Fund 4: Expense Ratio: 2%. $3000 per year contribution. Duration: 30 years. Return rate: 8%. Total before fees: $367,037.60. Total minus fees: $251,405.03.
Cost of fees: $115,632.57.
Fees as a percentage: Of your 401k went to fees.

Theres two extremely important takeaways with our five examples.

1. The long-term effects of the different fees are not a linear or straight-line process.
That means an expense ratio of the 1.5% VS the fund with a 1.25% is FAR more than .25% on your final Talley.

2. This is the effect of compound interest IN REVERSE. 
The fees, over time, grow to a more disproportional rate over time the same way we think about how our investments benefit from compound interest.
The bottom line is this. The traditional underperformance of actively managed funds combined with the devastating effects that their fees incur makes the final decision almost too clear.

Your best bet on long term investment growth, regardless the purpose?
Index Funds.