Passive vs. active investing past performance comparison/data?
The Telegraph had an interesting article recently going back 30 years for Mutual's in the UK that had beaten the market and trackers for both IT and UT  http://www.telegraph.co.uk/finance/personalfinance/investing/11489789/The-funds-that-have-returned-more-than-12pc-per-year-for-THIRTY-years.html
You set it based on liquidity management. Cash drag is one of the reasons actively managed funds underperform. The longer your settlement date, the less cash you have to hold because you can take three days to liquidate positions to redeem. So it's a convenience vs performance question. "I got started by reading the following two books: You could probably get by with just the first of those two. I haven't been a big fan of the ""for dummies"" series in the past, but I found both of these were quite good, particularly for people who have little understanding of investing. I also rather like the site, Canadian Couch Potato. That has a wealth of information on passive investing using mutual funds and ETFs. It's a good next step after reading one or the other of the books above. In your specific case, you are investing for the fairly short term and your tolerance for risk seems to be quite low. Gold is a high-risk investment, and in my opinion is ill-suited to your investment goals. I'd say you are looking at a money market account (very low risk, low return) such as e.g. the TD Canadian Money Market fund (TDB164). You may also want to take a look at e.g. the TD Canadian Bond Index (TDB909) which is only slightly higher risk. However, for someone just starting out and without a whack of knowledge, I rather like pointing people at the ING Direct Streetwise Funds. They offer three options, balancing risk vs reward. You can fill in their online fund selector and it'll point you in the right direction. You can pay less by buying individual stock and bond funds through your bank (following e.g. one of the Canadian Couch Potato's model portfolios), but ING Direct makes things nice and simple, and is a good option for people who don't care to spend a lot of time on this. Note that I am not a financial adviser, and I have only a limited understanding of your needs. You may want to consult one, though you'll want to be careful when doing so to avoid just talking to a salesperson. Also, note that I am biased toward passive index investing. Other people may recommend that you invest in gold or real estate or specific stocks. I think that's a bad idea and believe I have the science to back this up, but I may be wrong." "The best predictor of mutual fund performance is low expense ratio, as reported by Morningstar despite the fact that it produces the star ratings you cite. Most of the funds you list are actively managed and thus have high expense ratios. Even if you believe there are mutual fund managers out there that can pick investments intelligently enough to offset the costs versus a passive index fund, do you trust that you will be able to select such a manager? Most people that aren't trying to sell you something will advise that your best bet is to stick with low-cost, passive index funds. I only see one of these in your options, which is FUSVX (Fidelity Spartan 500 Index Fund Fidelity Advantage Class) with an exceptionally low expense ratio of 0.05%. Do you have other investment accounts with more choices, like an IRA? If so you might consider putting a major chunk of your 401(k) money into FUSVX, and use your IRA to balance your overall porfolio with small- and medium-cap domestic stock, international stock, and bond funds. As an aside, I remember seeing a funny comment on this site once that is applicable here, something along the lines of ""don't take investment advice from coworkers unless they're Warren Buffett or Bill Gross""." "Welcome to Money.SE. Please forgive what might sound like a cliche, ""How well do you sleep at night?"" I mean, specific to the mortgage. There are those who are in a group who consider debt, at any rate, to be inherently bad, and would not take on a 2% mortgage even if a different bank were offering 4% CDs. You just need to understand the risk.  Your mortgage cost after taxes may be 2.625% (if you are in the 25% bracket) therefore, your break even is 3.09% for long term investments. The recent ""lost decade"" had a return of -9.5% for the full 10 year period. This is just about the worst decade in modern history. The average 10 year return is a cumulative 183% gain, with a standard deviation of 138%. If a perfect bell curve, this means that 1 10 year in 6 will give you a return under 45%. In fact, of the last 100 10 year periods, 15 had returns less than 45%, and just 8 were less than 30%, right in line with the bell curve stats. We always need to say ""past performance is no guarantee of future results,"" yet, when it comes to the market (I use the S&P for my numbers, by the way) we do have history to give us an idea of the kind of volatility we might see over the years. In my opinion, your approach is sound, and your returns very skewed to the positive, the median 10 year return being 138%, vs your cost of money of 40% or so for a decade.  It's pretty easy to pull S&P data into a spreadsheet and analyze as you wish." Foreign stocks tend to be more volatile -- higher risk trades off against higher return potential, always. The better reason for having some money in that area is that, as with bonds, it moves out-of-sync with the US markets and once you pick your preferred distribution, maintaining that balance semi-automatically takes advantage of that to improve your return-vs-risk position. I have a few percent of my total investments in an international stock index fund, and a few percent in an international REIT, both being fairly low-fee. (Low fees mean more of the money reaches you, and seems to be one of the better reasons for preferring one fund over another following the same segment of the market.) They're there because the model my investment advisor uses -- and validated with monte-carlo simulation of my specific mix -- shows that keeping them in the mix at this low level is likely to result in a better long-term outcome than if i left them out. No guarantees, but probabilities lean toward this specfic mix doing what i need. I don't pretend to be able to justify that via theory or to explain why these specific ratios work... but I understand enough about the process to trust that they are on (perhaps of many) reasonable solutions to get the best odds given my specific risk tolerance, timeline, and distaste for actively managing my money more than a few times a year. If that. I don't see a contrast. It's really hard to predict which mutual funds will do well in the future. Predicting that ones which have done well recently will continue to do well works slightly better than chance. The WSJ article and Morningstar agree on all the objective facts, they just spin them differently. Yeah, I mean the real issue is that for probably 30% of users (conservatively) it's and IM system and how they get market data.  Anyone that uses BDHs or backtesting does not have a reliable alternative. The analytical tools FS offers for those functions cost almost as much. Also, index level data is very expensive, separated and priced by the index managers themselves.  The degree to which this 'debate' has been dumbed down is remarkable. "I hope a wall of text with citations qualifies as ""relatively easy."" Many of these studies are worth quoting at length. Long story short, a great deal of research has found that actively-managed funds underperform market indexes and passively-managed funds because of their high turnover and higher fees, among other factors.  Longer answer: Chris is right in stating that survivorship bias presents a problem for such research; however, there are several academic papers that address the survivorship problem, as well as the wider subject of active vs. passive performance. I'll try to provide a brief summary of some of the relevant literature.  The seminal paper that started the debate is Michael Jensen's 1968 paper titled ""The Performance of Mutual Funds in the Period 1945-1964"". This is the paper where Jensen's alpha, the ubiquitous measure of the performance of mutual fund managers, was first defined. Using a dataset of 115 mutual fund managers, Jensen finds that The evidence on mutual fund performance indicates not only that these 115 mutual funds were on average not able to predict security prices well enough to outperform a buy-the-market-and-hold policy, but also that there is very little evidence that any individual fund was able to do significantly better than that which we expected from mere random chance. Although this paper doesn't address problems of survivorship, it's notable because, among other points, it found that managers who actively picked stocks performed worse even when fund expenses were ignored. Since actively-managed funds tend to have higher expenses than passive funds, the actual picture looks even worse for actively managed funds. A more recent paper on the subject, which draws similar conclusions, is Martin Gruber's 1996 paper ""Another puzzle: The growth in actively managed mutual funds"". Gruber calls it ""a puzzle"" that investors still invest in actively-managed funds, given that their performance on average has been inferior to that of index funds. He addresses survivorship bias by tracking funds across the entire sample, including through mergers. Since most mutual funds that disappear are merged into existing funds, he assumes that investors in a fund that disappear choose to continue investing their money in the fund that resulted from the merger. Using this assumption and standard measures of mutual fund performance, Gruber finds that mutual funds underperform an appropriately weighted average of the indices by about 65 basis points per year. Expense ratios for my sample averaged 113 basis points a year. These numbers suggest that active management adds value, but that mutual funds charge the investor more than the value added. Another nice paper is Mark Carhart's 1997 paper ""On persistence in mutual fund performance"" uses a sample free of survivorship bias because it includes ""all known equity funds over this period."" It's worth quoting parts of this paper in full: I demonstrate that expenses have at least a one-for-one negative impact on fund performance, and that turnover also negatively impacts performance. ... Trading reduces performance by approximately 0.95% of the trade's market value.  In reference to expense ratios and other fees, Carhart finds that The investment costs of expense ratios, transaction costs, and load fees all have a direct, negative impact on performance. The study also finds that funds with abnormally high returns last year usually have higher-than-expected returns next year, but not in the following years, because of momentum effects. Lest you think the news is all bad, Russ Wermer's 2000 study ""Mutual fund performance: An empirical decomposition into stock‐picking talent, style, transactions costs, and expenses"" provides an interesting result. He finds that many actively-managed mutual funds hold stocks that outperform the market, even though the net return of the funds themselves underperforms passive funds and the market itself.  On a net-return level, the funds underperform broad market indexes by one percent a year. Of the 2.3% difference between the returns on stock holdings and the net returns of the funds, 0.7% per year is due to the lower average returns of the nonstock holdings of the funds during the period (relative to stocks). The remaining 1.6% per year is split almost evenly between the expense ratios and the transaction costs of the funds. The final paper I'll cite is a 2008 paper by Fama and French (of the Fama-French model covered in business schools) titled, appropriately, ""Mutual Fund Performance"". The paper is pretty technical, and somewhat above my level at this time of night, but the authors state one of their conclusions bluntly quite early on: After costs (that is, in terms of net returns to investors) active investment is a negative sum game.  Emphasis mine. In short, expense ratios, transaction costs, and other fees quickly diminish the returns to active investment. They find that The [value-weight] portfolio of mutual funds that invest primarily in U.S. equities is close to the market portfolio, and estimated before fees and expenses, its alpha is close to zero. Since the [value-weight] portfolio of funds produces an α close to zero in gross returns, the alpha estimated on the net returns to investors is negative by about the amount of fees and expenses. This implies that the higher the fees, the farther alpha decreases below zero. Since actively-managed mutual funds tend to have higher expense ratios than passively-managed index funds, it's safe to say that their net return to the investor is worse than a market index itself. I don't know of any free datasets that would allow you to research this, but one highly-regarded commercial dataset is the CRSP Survivor-Bias-Free US Mutual Fund Database from the Center for Research in Security Prices at the University of Chicago. In financial research, CRSP is one of the ""gold standards"" for historical market data, so if you can access that data (perhaps for a firm or academic institution, if you're affiliated with one that has access), it's one way you could run some numbers yourself."