Where to invest: Stock market indices versus mutual funds

Individuals seeking to increase their wealth by investing in the stock market often look to mutual funds as a source of secure appreciation for their money. However, drawbacks to mutual funds include time, effort, and fees. Moreover, other profitable investment methods without the drawbacks of a mutual fund exist. Here, we examined whether exchange-traded funds tracking major stock market indices (S&P 500, Nasdaq Composite, and Dow Jones Industrial Average) are more profitable investments than actively managed mutual funds over ten years. Analyzing returns from the three stock market index funds and five of the largest actively managed mutual funds over a ten-year period will allow us to determine which investment strategy is more profitable. We collected data on annual and cumulative returns over the past ten years for each stock index fund and mutual fund and tracked how much $10,000 would be worth if invested in each of these funds. Our findings demonstrated significantly higher cumulative returns for stock index funds in comparison to mutual funds and rare occurrences of mutual fund outperformance in any year studied. Over time, the gap in the value of $10,000 invested in either stock index funds or mutual funds increased, as stock index funds outpaced the growth of mutual funds. Nevertheless, volatility across all index funds was comparable. Therefore, investing in major stock market index funds is likely more profitable than mutual funds in the long run. Except in dramatic downturns that may require active management, money could appreciate more with high exposure to stock index funds.