Which style of investing performs better? Active or passive?
About 86% of active large cap managers beat their index in 2014. Only 86%. That means 14% of these higher cost ADHD OCD managers didn’t even do as well as their index.
Oops, wait! I made a tiny mistake. I didn’t mean to suggest that only 86% of active managers beat their index. I have to be careful around here. I could get sued for libel. Let me retract that.
It turns out 86% is the correct number, but the truth is, 86% of active managers failed to beat their index.
Yeah, you heard me. A total of 86% of these active managers did worse than the index. All those airplane meals and Excel spreadsheets and you do worse?! Yup. And it’s not like 2014 was some weird aberration.
So you’d probably be better off investing with the surfer-hippie-couldn’t-even-pass-the-GED Bodhi than an active manager.
This is the big debate in the investment world. Active managers say, “We can beat the market,” and then you have reality saying, “No, most of you can’t and don’t.”
As an investor, there may be some circumstances where you will want to have active managers, but for the bulk of your portfolio (or even all of it!), you can’t go wrong with a lazy, uh, I mean, a passive index approach.
The proceeding blog post is an excerpt from Get Money Smart: Simple Lessons to Kickstart Your Financial Confidence & Grow Your Wealth, available now on Amazon.
About the Independent Financial Advisor
Robert Pagliarini, PhD, CFP®, EA has helped clients across the United States manage, grow, and preserve their wealth for the past 25 years. His goal is to provide comprehensive financial, investment, and tax advice in a way that was honest and ethical. In addition, he is a CFP® Board Ambassador, one of only 50 in the country, and a real fiduciary. In his spare time, he writes personal finance books, finance articles for Forbes and develops email and video financial courses to help educate others. With decades of experience as a financial advisor, the media often calls on him for his expertise. Contact Robert today to learn more about his financial planning services.