15 Jan I have all index funds. Is it time for a change?

Q. I have all my investments in index funds, including my retirement accounts. Is there any reason it’s worth using different kinds of mutual funds?
— Investor

A. The start of a new year is a great time to reevaluate your investments.

Investors have many strategies to consider.

Index funds try to match the performance of a specific index, while actively-managed funds work to outperform benchmark’s that are similar to the fund’s objectives.

“Index funds tend to be the biggest bang for your buck,” said Matt Rembish, a certified financial planner with OneDigital in Boonton. “In 2022, average asset weighted fees for index funds are 0.12% while average active funds are 0.59%, according to Morningstar.”

Rembish said he considers several questions when looking at an actively-managed fund.

o Have they outperformed against their benchmark consistently? Are they adding value?
o What’s the fee?
o How long has the portfolio manager been running the fund? If the manager has only overseen the fund for five years, then the performance 5+ years out doesn’t apply.
o What’s the strategy? Does it match the goals you have for the money you are investing in the fund?

Rembish said there is nothing wrong with using all index funds, all active funds or a mix of both. Each has advantages and disadvantages, he said.

“Asset allocation will have a bigger impact on your investment accounts than deciding on index versus actively-managed funds,” he said.

You should look at your mix of stocks and bonds, and then consider your timing and risk tolerance.

“Look at how your investments would have performed in 2008. How would you react if that happened today? Would you sell out of everything or hold on?” he said.

If you want an objective opinion, consider a review from a certified financial planner.

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This story was originally published in January 2024.

NJMoneyHelp.com presents certain general financial planning principles and advice, but should never be viewed as a substitute for obtaining advice from a personal professional advisor who understands your unique individual circumstances.