Buying shares through a fund management company rarely makes sense because fund managers almost never beat their index over the long term (10-15 years and longer).

If you don’t believe it, then read this research article from S&P Dow Jones Indices LLC:

• 98.9% of the US equity funds underperformed over the last 10 years
• 98% of the global equity funds underperformed over the last 10 years
• 97% of the emerging market funds underperformed over the last 10 years
• 86% of the actively managed equity funds in Europe failed to beat their benchmark over the last 10 years
• 100% of the actively managed equity funds sold in the Netherlands failed to beat their benchmark over the last 5 years

Yes, rather unbelievable, but true.

Furthermore, actively managed funds are expensive. Their typical costs are as follows:

• 2.5%-5% entry costs (to cover the costs of the sales channel)
• 1.5%-2% annual costs (management fees)

So over 10 years, managed funds will be eating 20% (and more) of the initial capital invested (your money!), and this will happen whatever the performance of the fund manager might be (good rarely, bad and average most of the time). You have to pay these costs and won’t receive an invoice for them: well hidden! The high costs of actively managed funds are, in the end, the primary reason why managed funds underperform their benchmark.

Fortunately, you can avoid these costs by buying ETFs.