For the majority of investors, and for the majority of times, I have never been a fan of actively-managed mutual funds. At least not with a majority of one’s investment portfolio. The higher fees to invest in them lead to long-term underperformance compared to passively-managed, or index funds. That’s especially true over long periods of time, such as 10 or 20 years, but is the case for most over shorter periods too, such as 1 or 3 years. Further, this underperformance of actively-managed funds extends to the majority of types of assets (international, large-company, small-company, bond, etc.).
The stock market rally since the Presidential election has been attributed, at least in part, to the President’s plan to cut income taxes, along with cutting wasteful government spending and regulations. On the spending side however, overall spending increases appear to now be part of new spending plans (on top of the yearly mandated increases on discretionary spending – nearly 70% of total spending. See chart below). While there were initial ideas for cuts in certain domestic spending programs to offset increased military and other spending, the new Congressional compromise appears to be to keep the spending increases and eliminate the spending cuts. So, despite the enthusiasm, more government overspending, along with reducing tax rates, is nothing new. In fact, that’s been norm for much of the last fifty years, as tax rates have fallen and spending has grown.
As I talked about last time, while the government and media like to point to rising figures of financial wealth as evidence of economic success and recovery, the success is mostly one-sided in favor of the already-wealthy. Wealth inequality in America, the gap between assets owned by rich and poor, has increased steadily since the mid-1990s (see chart below).
David A. Pace, CFA
Note: These comments and articles are for informational purposes only. Nothing in these articles are meant to provide specific investment advice and are not a substitute for professional advice from a qualified adviser. Since every investor's investment and personal circumstances are unique, he or she should always enlist the help of a competent and trustworthy professional in addressing their financial needs.