One of the most hotly debated areas in investment is whether you should invest in actively managed funds, or index funds. As is often the case, these debates often generate much more heat than light.
The difference is that actively managed funds seek to select assets (let’s focus on shares, but the same principle applies to other asset classes such as bonds), whereas index funds simply look to track a given index and buy shares to mirror the index, without worrying about the merits of any particular company.
Let’s look at the logic.
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