Q. I want to change from actively managed funds to index funds, but my wife says she likes the investments we have even though they are more expensive. What can I do to try to change her mind?
— Husband

A. This discussion is about more than which way the toilet paper should face or who leaves their dirty socks on the bedroom floor. It’s about more than just changing your wife’s mind.

It sounds like you need a compromise — or at the very least a close review of how your investment strategy will help you reach your shared goals.

Index and actively-managed funds each have unique benefits that you can use to your advantage. It all comes down to how you want to put your money to work for you, said Alan Meckler, a certified financial planner with Cornerstone Financial Group in Succasunna.

You want to be sure you understand what you’re invested in, too.

“Index funds try to track the performance of a particular market benchmark, or `index,’ as closely as possible, where actively managed funds try to outperform their benchmarks and peer group average,” Meckler said. “You cannot invest directly in any index and do not actually own any shares of an index.”

He said the strategy for index funds is to buy all or a representative sample of the securities in the benchmark, whereas actively-managed funds combine research, market forecasting and the experience and expertise of a portfolio manager or management team.

Index funds tend to be more tax-efficient and have lower expense ratios than actively managed funds because they generally trade less frequently, Meckler said.

Many studies have been done on passive management versus active management, and there is no clear cut answer.

“Even if the fees are higher in the actively-managed funds, if the performance is better, then it may be worth the higher fees,” he said. “The bottom line is you would need to review the funds you have to see if they are performing as well as the index funds you are considering. Past performance is no guarantee of future results.”

What’s more important here, though, is not the debate about actively-managed versus index funds, but your overall financial situation as a couple.

Your best bet is to meet with a financial advisor who can review your goals, risk tolerance and time horizon to create an investment plan that works for you and your wife — together. This professional will be an a objective voice to help you and your wife come to an agreement that works for your long-term financial plan.

Good luck!

Email your questions to ask@njmoneyhelp.com.

Karin Price Mueller writes the Bamboozled column for The Star-Ledger and she’s the founder of NJMoneyHelp.com. Click here to sign up for the NJMoneyHelp.com weekly e-newsletter. Like NJMoneyHelp.com on Facebook and follow it on Twitter


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