How I Turned $1,000 into a Million Dollars in Real Estate ...

> Considering the fact that 80 percent of all
> mutual funds underperform the market
> averages in any given year, this is indeed
> an impressive track record.

Let me start by saying that when I say the odds are in your favour when you invest in the stock market, I am talking about the odds of producing a positive return over time. The odds of *beating* the index, or outperforming, is a different issue and these odds are significantly less. :)

80% of mutual funds underperform the market. While this is a startling figure, I think it is a figure that makes sense for a number of reasons.

Firstly, an index is basically a collection of stocks used to represent the market. The value of an index is calculated by adding up the price of each component of the index multiplied by its weighting in the index, and thus a return on an index over a given time period is just a change in prices of the underlying assets.

Which is all fine, as it gives you an indication of how the underlying assets have performed.

The problem with this is that indexes do not account for any of the transaction costs, whereas manager returns are typically after all fees and transaction costs, which includes things like brokerage which you really can't avoid.

So even if you were to personally go out there and buy all the stocks in an index, you'd skip the management fees associated with managed funds but you'd incur brokerage costs, and at the end of the day your performance would underperform the index.

- Thomas.