People can’t predict markets but markets can predict people. Forecasts about future economic growth have no impact on the future performance of the stock market while the past performance of the stock market has an impact on what forecasters believe about the future.
Index fund returns keep getting better the longer you hold them. This is because low-cost index funds give you more of the market’s return and because many actively-managed funds eventually go under. A combination of cost savings and longevity help index fund returns float to the top in rankings.
The active versus index battle benefited actively-managed bond funds by a small margin in 2012. On average, 58 percent of actively-managed fixed income funds beat their benchmark last year. Active fund performance was lower over longer periods, with only 30 percent of funds beating the five-year benchmark.
The active versus index fund debate raged on during 2012 as more investors shifted their portfolios to passive strategies. U.S. equity indices handily beat actively-managed mutual funds across most investment styles, but not all. Active funds outperformed in the worst-performing styles, due to the index purity.
The Obama administration will release its 2014 budget on April 8, according to congressional sources. More cuts in federal outlays might cause investors to turn bearish in the market. They may see it as crippling demand, increasing unemployment, and clobbering stock prices along the way. These fears are unwarranted.