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Passive is the New Aggressive (Part 5)

Key Points

  • The fee differential between active and passive mutual funds may not appear to be significant at first sight.
  • However, over long periods, the impact of higher fees associated with active investing through mutual funds can be considerable, as compared to passive alternatives.
  • As such, over an investment lifetime of 45 years, excessive fees could wipe out a large percentage of your potential wealth.
  • Therefore, going with a passive approach has the potential to mitigate this particular concern.

Continue reading → Passive is the New Aggressive (Part 5)

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Passive is the New Aggressive (Part 4)

Key Points

  • Higher fees tend to correlate with worse investment performance, as suggested by research from Vanguard based upon the historical analysis of active and passive large-cap mutual funds.
  • Research suggests that the lower the fees, the less likely that a fund will underperform its benchmark (which is good for the investor).
  • Sound investing comes down to being able to differentiate between what you can control and what you can’t, and then doing your best to focus on the former while still maintaining a solid understanding the risks associated with the latter.
  • Given that you can control how much you pay in fees, but not whether a fund will outperform, a passive approach has strong merit over an active one.

Continue reading → Passive is the New Aggressive (Part 4)

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Passive is the New Aggressive (Part 1)

Key Points

  • 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.

Continue reading → Passive is the New Aggressive (Part 1)