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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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Why invest in one thing over another? (Part 2)

Key Points

  • Whether you agree with it or not, having a sound understanding of the Efficient Market Hypothesis (EMH) is critical.
  • Making active investment decisions requires factoring in all relevant and available information that may influence future performance and risk. This is a daunting task.
  • Nevertheless, according the EMH, the market is able to do this seamlessly and instantly.
  • According to theory, the markets have a way of equalizing prices such that all investment opportunities provide similar risk-adjusted returns on a go-forward basis.

Continue reading → Why invest in one thing over another? (Part 2)