A study by Charles Schwab & Co. recommends that investors own a mix of index and actively managed mutual funds for optimal cost and risk management.
The study, "Core and Explore: An Effective Strategy for Building Your Portfolio," was written in the Schwab Center for Investment Research, a division of the San Francisco brokerage.
For instance, within large-cap U.S. equity, Schwab recommended allocations of roughly 80% to index funds and 20% to actively managed funds. The balance tilts for small-cap and international portfolios, where Schwab recommends holding 40% and 30%, respectively, in index funds.
"People often think of investing as an either-or thing-index or active management," a Schwab spokesman said.
Index funds, which track market indexes, charge less in management fees than active funds, which run the risk of higher volatility.
The study was made available to Schwab customers last week