STREET DOGS
From MarketWatch.com, the only valid reasons for not joining the indexing party: 1. You can’t stomach the ride: Index investing involves riding the market rollercoaster, and not everyone can do that. If you can’t invest without feeling every bump and dip and that action makes you sick, a manager may calm your fears.
2. You’re following a programme or plan where the type of fund is secondary to the allocation: One of the most popular investment options today is the target-date or life-cycle fund — which are built to suit investors of a similar age and which grow more conservative as they reach retirement. Using these funds is about finding the right allocation and glide path for your investments and you want active management adjusting the portfolio.
3. You are pursuing low-cost active strategies: The actively managed funds with the best chance of outperforming their benchmark have costs only fractionally higher than their index peers. If you like the idea of having a manager at the helm and steering a course, make it someone who acts more like a buy-and-hold indexer than a classic gunslinger.
4. You’re investing in parts of the market where the indices are unproven, ineffective or new: The places where active management has the best chance of delivering superior performance are the niches, where indexing is harder or less established. There is nothing wrong with mixing passive and active management to build a portfolio that covers all parts of the market you are interested in.
5. You would face a big tax hit if you switch: You may find that you are better off delaying the taxes that might be due when you sell older investments. If that’s the case, move new monies to indexing and leave the old money in place until it makes sense to change.