Using broad market index funds as a long-term core holding (the portion of money you keep invested for years)

There’s no upfront cost. The trade-off is that you give up the chance of picking a top-performing fund manager. The harder part is that when the index drops, you have to endure the losses too — you can’t pull your money out midway.

The combined holdings of all US active equity funds are nearly identical to the overall market portfolio: the stocks these funds own together match the composition of the broader market. However, the high costs of active management translate directly into lower net returns for investors after fees are deducted. The study used a bootstrap simulation method to randomly rerank fund performance data, to see how much of this outcome could be attributed to luck alone. The results showed that very few funds generate enough excess returns to cover their fees: the extra gains they achieve over the market are not enough to offset the fees they charge (study published in the US in 2010). S&P Dow Jones Indices conducts an annual survey: in 2024, 65% of US large-cap active equity funds underperformed the S&P 500. Over the past 24 years, an average of 64% of such funds underperformed each year. In the 15 years ending in late 2024, no single category of active funds managed to deliver better results than their index counterparts.

Fama EF, French KR (2010). Luck versus Skill in the Cross-Section of Mutual Fund Returns. The Journal of Finance 65(5):1915-1947. https://doi.org/10.1111/j.1540-6261.2010.01598.x；S&P Dow Jones Indices (2025). SPIVA U.S. Scorecard Year-End 2024. https://www.spglobal.com/spdji/en/spiva/article/spiva-us/（官网拒绝自动抓取，数字按 2025-05-12 的存档核对：https://web.archive.org/web/20250512071051/https://www.spglobal.com/spdji/en/spiva/article/spiva-us/）；S&P Dow Jones Indices (2025). SPIVA Asia Ex-Japan Scorecard Mid-Year 2025（Report 1a，China Large-Cap 对 S&P China A 300 的跑输比例：1 年 60.5%、3 年 69.6%、5 年 50.8%）. https://web.archive.org/web/20251103165922/https://www.spglobal.com/spdji/en/documents/spiva/spiva-asia-ex-japan-mid-year-2025.pdf（官网拒绝自动抓取，按存档核对）；Harvey CR, Liu Y (2022). Luck versus Skill in the Cross Section of Mutual Fund Returns: Reexamining the Evidence. The Journal of Finance, 77(3). https://doi.org/10.1111/jofi.13123（争议方）

Controversy: One article has re-examined this conclusion. It points out that the Fama-French method of repeated resampling is insufficient. According to its algorithm, even if the portion of excess returns from a fund is indeed significant, it might still be judged as "indistinguishable from luck." Therefore, the conclusion that "almost no funds possess skill" may be too heavy-handed. The figures in China are not as one-sided as those in the US. According to S&P Dow Jones statistics as of 2025 year 6 month, the proportion of A-share large-cap active funds that underperformed the S&P China A 300 index was 1% in 60.5 year, 3% in 69.6 year, and 5% in 50.8 year. This statistic only goes up to 5 year and cannot provide longer-term data. Therefore, in China, there is no definitive conclusion yet on whether actively managed funds consistently underperform the index in the long run, but the fact that index funds have lower fees remains true. This does not constitute investment advice.