The manager may also toss in a couple of stocks to please investment bankers who do business with the company. The average fee for a managed fund is 1.4 percent a year. A committee periodically adds and subtracts names. Chrysler got bounced last year when it was bought by Daimler Benz, a German company. So rising stocks like AOL take up an expanding proportion of the index.
Index funds let their winners ride.
They hold stocks until they are kicked out of the index. The deaf and dumb index fund is oblivious to both triumph and disaster. It is always 100 percent invested in stocks. The typical annual fee for an index fund is 0.56 percent. Last year gave me a whole new perspective on investment management.