CHAPTER 22
YOUR 401(k) ACCOUNT AT S&S AIR
1. Before the fact, you would expect that mutual fund’s managers would be able to outperform the market.
This is due, in part, to the Darwinian nature of the business. Good performing fund managers are richly
rewarded, and poor performing fund managers are fired, often very quickly. In reality, we should expect
We should also consider that mutual fund managers may be able to outperform the market before
expenses. Whether they can outperform the market on an after-expense basis becomes a question of
2. The results in the graph tend to support the idea of market efficiency. Consider the case of the Fidelity
Magellan Fund, a well-known actively managed equity mutual fund, which had assets of about $15
billion. So the question is this: What would Fidelity pay for one year to increase the return of the
3. Given that the evidence presented tends to support market efficiency, you should invest in the S&P 500
index fund. However, this is not the entire answer. By investing the entire equity portion of your account