Yes, it is generally true that most mutual funds underperform the market. According to various studies and reports:
- More than 75% of mutual funds underperform the market.
- Across all domestic actively managed equity funds, 88.4% underperformed their respective benchmark over the last 15 years.
- In 2022, exactly 50% of all domestic funds underperformed the S&P 500 index.
- In 2021, when the S&P 500 index gained 29%, 80% of funds underperformed.
One of the main reasons for this underperformance is the fees or Management Expense Ratios (MER) charged by mutual funds4. These fees can eat into the returns, making it harder for the funds to outperform the market.
However, it’s important to note that some mutual funds may outperform the index. Therefore, it’s crucial for investors to understand the fees they are paying for those funds and whether they are getting value for those fees. It’s always recommended to consult with a financial coach for personalized advice.
