Why Wall Street Fat Cats Don’t Always Win

Are your ready for this?  On Wall Street at least outsiders are beating the fat cats.

Yup. The kind of humble low-fee mutual fund that all savers have access to may be the best place to watch your money grow.

Most index funds easily outperform expensive, exclusive hedge funds. And they have been doing so for the past 5 years.

So millions of middle-class savers with 401K plans are getting much better returns on their investments than billionaires who have handed over the cash to high-paid private fund managers.

Last month the S&P 500 – the benchmark for many mutual funds – rose  3 times as much as the typical hedge fund, according to Hennessee Hedge Fund Index.

Kind of builds on what I was suggesting about Twitter in my last post, and what investment writer Tim Lee says in “A New Case for Index Investing,” a smart column today in US News and World Report.

It’s easy to make the case that many high-paid Wall Street experts really don’t know what they’re talking about.

In an age when the super-rich are gobbling up an ever larger share of household earnings, and insider-trading scandals occupy the business headlines, it’s comforting to know the big money crowd doesn’t have a monopoly on valuable information.

I am not suggesting there is no such thing as a savvy, sage investment advisor. Many do a great job for their clients.

But when it comes to beating the market,  the cold hard numbers show that the boastful claims of many stock pickers don’t add up.

And so it goes with politics and our cultural life. Elites often don’t have  all the answers. A willingness to reach out to broader circles of information, beyond our comfort zones, can boost our returns!

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