Passive is the New Aggressive – Page 2 – Investing Forever Advisory

Passive is the New Aggressive (Part 3)

There may be strong psychological reasons why financial firms can command such high fees.
Ultimately, these high fees can lead to the systematic transfer of wealth away from investors’ pockets.
The Efficient Market Hypothesis suggests that actively invested mutual funds face an impossible challenge in outperforming their passively invested counterparts.
Nevertheless, the fees for actively managed funds are much higher than those of passively managed funds.

Many revere Wall Street for its ability to provide its clients with superlative (better than the market average) risk-adjusted returns.
Nevertheless, fees, one way or another, are the fundamental driver of Wall Street’s success.

According to theory, on a forward-looking basis, stocks are priced such that each stock should offer its investors with the same risk-adjusted return as any other stock, irrespective of past performance.
Based upon this line of reasoning, outperforming the market is exceedingly challenging.
Given this, passive investing aims to keep investment choices to a minimum with the goal of selecting an appropriate benchmark and aligning investments as closely as possible to said benchmark, with minimal fees and cost.
Alternatively, active investing involves making purposeful decisions regarding the selection and timing of investments, in an effort to nevertheless outperform the market.