Passive Index Based Investing Outperforms Active Management
Key Investment Principle #7
- Research by Standard and Poor’s has proven that the majority (more than 70%) of all actively managed mutual funds fail to meet or exceed their benchmark. Over long time periods (5 years or more) more than 80% fail to do so. (see: SPIVA study)
- Most of the active managers and actively managed mutual funds that have beaten their respective index benchmarks over the long term are either closed to new investors or have large (million+ dollar) minimum investment criteria.
- Exchange traded funds (ETF’s) now provide lower cost structures, more liquidity, and more variety with regard to U.S. and foreign stock sectors, commodities, and real estate. Today with ETF’s, the small investor can have access to the same broad diversification options that only large institutional investors previously enjoyed.