Passive Investing: The Evidence the Fund Management Industry Would Prefer You Not to See
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- เผยแพร่เมื่อ 28 พ.ย. 2012
- sensibleinvesting.tv -- the independent voice of passive investing
A remarkable 54-minute film featuring some of the world's top economists and academics and demonstrating:
* how the claims of active fund managers to be able to beat the market are largely a myth
* how costs are the biggest drag on performance - and why active costs more
* how passive investing offers the best experience for the vast majority of investors
* the benefits of a diversified portfolio in guaranteeing consistent returns
* why passive investing is better for your health
* why active investing has held sway for so many years....
* ... but why things may be changing
* and why passive is the rational, mathematically proven route to investing success.
Investing for the future... It's an issue none of can afford to ignore.
No one's job is safe these days... How would you cope if you lost yours?
We're all living longer too... So are you saving enough to fund 25 years or more of retirement?
Can you really afford to pay for your children or grandchildren to go to university - or help them onto the property ladder?
And what about all those holidays you promised yourself?
We entrust the vast bulk of our investments to fund managers.
Here in the UK, according to Her Majesty's Treasury, the industry has more than four TRILLION pounds of investors' money under management.
Fund managers invest people's savings wherever they see fit - mainly in equities, or shares in listed companies.
They claim to be experts at making our making grow, using their expert knowledge to pick the shares that will outperform the market.
But all too often the returns they produce are considerably lower than the average return of a benchmark index like the FTSE 100 - or the S&P 500 in the States.
For veteran investment guru John Bogle, the problem is simple. Fund managers just aren't as smart as they like to think they are.
As it means trading against the view of numerous market participants with superior information, buying or selling a security is effectively just a bet. So, whilst your fund manager might lead you to believe it's his knowledge or intelligence that enables you to beat the market, he's really no better than a gambler.
So, you might be lucky enough to choose the right fund manager. But you could just as easily pick the wrong one.
According to the financial services company Bestinvest, there are currently nearly £10 billion of UK investors' money languishing in what it calls dog funds - in other words, funds which have underperperformed their benchmark index for at least three consecutive years.
Ultimately, of course, fund managers are businesses. They exist to make money for themselves. They want our business - even if it means persuading us to invest in a fund which they themselves wouldn't want to put their own money in.
It's now time to look at what it actually costs us to invest.
Fund managers are, of course, businesses. And, like all business, they have overheads.
Running a big fund management company doesn't come cheap - esepcially when top managers earn around £2 million a year, including bonuses.
And remember, it's you, the customer, who picks up the tab.
Ultimately, though, fund managers need to make a profit.
In fact they'e making around £10 billion from us every year - and that's regardless of whether or not they manage to produce a profit for us.
Part of the challenge is working out exactly what we are being charged. Investors typically use something called the annual Total Expense Ratio, or TER, to compare the cost of investing in different funds. But, the TER excludes dealing commission, stamp duty and other turnover costs that can add considerably to the expense of investing over time.
So, apart from those hidden charges, what else are we having to pay? More importantly, what sort of impact do charges have on the value of our investments?
And the bad news doesn't stop there. Despite a marked increase in competition, management charges in the UK have been steadily rising over the last ten years.
There are some encouraging signs for consumers. The FSA's Retail Distribution Review will require fund managers to be fairer and more transparent when it comes to charges. In the meantime, investors should be on their guard.
For more videos like this one, visit sensibleinvesting.tv
I began my investment journey at the age of 38, primarily through hard work and dedication. Now at the age of 42, I am thrilled to share that my passive income exceeded $100k in a single month for the first time. This success reinforces the importance of the advice mentioned earlier. It is not about achieving quick wealth, but rather ensuring long-term financial prosperity
Achieving significant returns isn't about volatile stocks; it's about effectively balancing risk and reward. Proper position sizing and leveraging your advantage repeatedly are essential, whether you're a long-term investor or a day trader.
Certainly, many underestimate advisors until emotions lead to losses. A few summers ago, during a tough divorce, I sought a licensed advisor who, through diligent work, boosted my business from $190k to around $720k despite inflation.
wow that’s stirring! Do you mind connecting me to your advisor please. I desperately need one to diversified my portfolio.
The Adviser I'm in touch with is *'Jude Ryan McDonough'* , he works with Merrill, Pierce, Smith incorporated and interviewed on CNBC Television. You can use something else. for me her strategy works hence my result. He provides entry and exit point for the securities I focus on.
Thanks, I just googled him I'm really impressed with his credentials. I reached out to him since I need all the assistance I can get.
Once upon a time, I was an eager investor. With high hopes and dreams, I diligently built my investment portfolio over the years. But as the tides of the market turned against me, my once-promising investments began to crumble. Stock prices plummeted, bonds defaulted, and my hopes faded away. With each passing day, my portfolio dwindled, mirroring the sinking feeling in my heart. I watched helplessly as my hard-earned savings vanished, leaving behind a lingering sadness and a stark reminder of the unpredictability of the financial world. I'm here again because I want to get back on track.I need ideas to get on on a recovery process.
Losses can provide valuable lessons and insights into the intricacies of the financial market. They can highlight areas where improvements can be made in investment strategies, risk management, or research. By reflecting on the losses and learning from mistakes, one can enhance their knowledge and skills, which can contribute to future success. I don;t have much to give but my thoughts are with you.
You can get back on track by following this simple process: Take stock of your financial goals, risk tolerance, and investment timeline. Understand your investment losses and the factors that contributed to the decline. This self-assessment will help you communicate your needs effectively to a financial advisor. Remember to seek the help of a professional financial planner(CPF) as you start over, which is what you should've done from the get go.
I'm sure the idea of an investment-Adviser might sound controversial to a few, but a new study by Motley-fool found out that demand for Financial-Advisers sky-rocketed by over 42% since the pandemic and based on firsthand encounter I can say for certain their skillsets are topnotch. I've accrued north of 880k within 16-months from an initially stagnant Portfolio.
Trustworthiness is the issue: Entrusting someone with your finances requires a high level of trust. It can be difficult to determine if a financial advisor is reliable and has your best interests at heart. It's essential to find an advisor who operates with integrity and adheres to ethical standards. But you seem to have it all worked out good for you, so I’m by my screen waiting for your recommendation.
I definitely share your sentiment. My Financial adviser ‘’Colleen Janie Towe’’ is highly qualified and experienced in the financial market. She has extensive knowledge of portfolio diversity and is considered an expert in the field. I recommend researching her credentials further. She has many years of experience and is a valuable resource for anyone looking to navigate the financial market.
A father took his son down to the yacht club and said "Look son, those are all the brokers yachts". The son said "Where are their clients boats".
Money master the game? 🤑
Uuuyyyyyyy
Mr. Bogle said it best: don't look for the needle in the haystack; buy the entire haystack!
Actually if you look at the Vanguard S&P 500 ETF index for example, it has provided a 14% return since inception which is public information with a fee of .06%. I'd like to see a high cost "money manager" who charges you at least a 1.5% fee beat that as a net return. Broad index funds are safe, but it doesn't hurt selecting other diversified ETF or mutual funds as well to balance out your portfolio; that's what I do.
Hey you know there's nothing wrong with picking individual stocks as a part of a taxable portfolio (or a retirement portfolio if you're bold enough), but if you want to gamble and put all your money in an individual stock sure it can pay off handsomely, but that's not the risk I'm willing to take with large sums of my hard earned money. To each their own but the approach to passively invest in broadly diversified funds isn't wrong and all depends on your risk tolerance. There's no one answer for all individual investors especially the average Joe with limited capital to invest to begin with, do you think they want to bet the ranch on individual stocks? I bet for most the answer will be no.
True but statistically majority is investing in crap. In my country its the only option for vast majority, we have no vanguard, only some low cost brokers who still charge some fees but you are not dealing, for example, with vanguard directly so its a bit more expensive and people dont even know about it. Mutual funds are mostly run/sold by commercial banks and insurance companies who have 3-10% TER (yes, that high) and when I look at their portfolios (which are often funds of funds) its usually useless crap they invest in and no mutual fund in past 10 years has beaten benchmark once.
Sure I could invest in specific companies but you have to continuously watch their performance. I could invest in automotive Industry but you just never know when some huge scandal (like recent emission scandal with volkswagen etc) is going to nuke down the company (or that recent kick-out of a passenger from an airplane, or kodak and other companies in history). If you spend 10 000 hours doing/researching this you will become an expert and make some nice money, passive investing is for this huge majority of people who want to do something meaningfull with their savings. I dont want to do this honestly, many people dont. This is for people who want to do better than average and earn money for daily living elsewhere. Sure not everyone can be above average, but since vast majority are stupid consumer-oriented morons who spend 100% of their salaries or invest in crappy mutual funds ripping them off 25-30% returns I would say its pretty safe to invest in cheap ETF over 30 years and enjoy nice retirement.
Well if you beat inflation that's better than the 1 or 2 percent you'll get off a savings account. Passive investing is for people who work I guess.
A) Not sure where you're getting those numbers from. Through 6/30, the 10-year total return on the Vanguard Total Stock Market ETF (NYSE: VTI, correlation with S&P 500 should be above 0.95) was 7.4% net of fees. THIS is much closer to the typical long-term return for large-cap US stocks; the past 10 years contain a full market cycle, including a severe downturn between 2008 and 2009. (institutional.vanguard.com/VGApp/iip/site/institutional/investments/productoverview?fundId=0970&source=autosuggest&fromSearch=true)
B) Even if the ETF's returns were 1.5% net of inflation (i.e., a 1.5% real return), one cannot compare that to the nominal (or before inflation) return on a savings account. Say the yield on a high interest savings account is 1.5%; the comparison should be: 1.5% yield less 3.0% inflation for a -1.5% real return. The long-term return on the ETF would exceed that of the savings account.
C) Equity ETFs such as VTI or an S&P 500 fund are composed of Individual stocks; they're just packaged into a single security. Should an investor prudently hold a sufficiently diversified collection of individual stocks, the investor will likely end up with returns that are close to those of equity markets and thus those of equity ETFs, albeit with higher volatility. Also, chances are that typical investor behavior of higher turnover (and attendant trading costs, taxes, and other expenses) would lead to returns lower than those of the ETF.
So, yes, one should invest in equity markets to stay ahead of inflation, but a US large-cap ETF, such as one tracking the S&P 500, should serve a lot of people just fine, including the wealthy.
I began investing at the age of 33, primarily utilizing my hard work and dedication. Now at the age of 38, I am delighted to share that my passive income exceeded $100k for the first time in a single month. This advice is truly valuable, so don't hesitate to take action. Remember, it's not about achieving wealth quickly, but rather about building wealth consistently and persistently.
This is superb! information, as a noob it gets quite difficult to handle all of this and staying informed is a major cause, how do you go about this are you a pro investor ?
I understand the uncertainty of tomorrow, and I agree that starting to invest today can be challenging, especially without a clear understanding of where and how to invest. Since I've personally tried navigated the path to passive income, I'd be delighted if you can offer me some guidance based on your experiences that help you embarking on your own journey towards financial security.
I never expected it, but after closely monitoring my portfolio's performance, I was astounded to see it generate a staggering $473k in just the past two quarters. This eye-opening experience has given me insight into why experienced traders can achieve remarkable returns even in lesser-known markets. Taking this leap was undoubtedly the boldest decision I have made recently.
Wow, that’s stirring! Do you mind connecting me to your advisor please. I desperately need one to diversified my portfolio.
I’ve actually been looking into advisors lately, the news I’ve been seeing in the market hasn’t been so encouraging. who’s the person guiding you?
I appreciate Bogle's honesty and what he's built Vanguard into. That's why I invest almost my entire portfolio in low cost Vanguard index funds.
D LG . Any low risk Vanguard nods???
S Avgoulis VTSAX is as good as it gets. Admiral shares entire market.
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Blind index investing is just budding up the price of everything in the index regardless if that company is paying dividends to shareholders, profitable, a good long term investment like blockbuster, etc.
Vanguard s and p index fund has become the biggest ponzi on earth with low yield around 1.5 percent the last 15 years.
Sure I might purchase their REIT index VRE on the TSX or high dividend index fund, or bond index funds, etc.
But thinking index fund investing is great, if everyone is doing it it turns the market into a ponzi. Paying little attention to yield.
When you buy shares kiss your money goodbye. Count on cash flow for returns only... any capital gains later is a bonus..
And this documentary talking about your money "growing" ... when you purchase shares your money is actually gone..
@@mysticjedi6730 There are plenty who believe this theory, but there is ZERO evidence that it's a poor investment strategy. To the contrary, there is a mountain of evidence that suggests it's the best strategy for average investors.
Investing in the stock market is the best option to make a passive income. Virtually all the markets are crazy, most people pay more attention to the shiniest position on the graph, I’m keeping a diversified portfolio.
To manage investment risk, consider maintaining a broad diversification of your investments that reflects your personal risk tolerance, time horizon, and the nature of your financial goal.
Remember, diversification is an approach to help manage investment risk. It does not eliminate the risk of loss if security prices decline. Because investing can be complicated, consider working with a financial professional to help guide you on your wealth-building journey.
who would you endorse? I've been in the shadows for too long.
@@mariahhayes5089 My consultant is 'MARTHA ALONSO HARA", look her up online if you care for supervision.
@@helenoliver4838 Thank you so much! Found her webpage and left a message. Hopefully, she responds.
The moment I realised that predicting the market is pointless was almost an an epiphany to me. It is so simple really that I wonder why it took me so long to figure this out. Actively managed funds with high costs isnt worth it in the long run. Great educational video.
I realized it before I heard this, but it really made sense to me when I heard Jack Bogle explain it. Essentially by the laws of basic arithmetic, large fund managers are the average of the market, because they’re the ones initiating most of the trading. After costs to their clients, their funds are below the market. Essentially people are just paying fund managers to move money around, compete with each other, get average returns, and charge their clients fees for underperforming after fees to their clients. We’re employing useless people for a useless job.
I was advised to diversify my portfolio among several assets such as stocks and bonds since this can protect my portfolio for retirement. I'm seeking to invest $200K across markets but don't know where to start.
For a successful long-term strategy you have to seek guidance from a broker or financial advisor.
With the help of an investing advisor, I diversified my $400K portfolio across markets, and I was able to earn over $900k in net profit from high dividend yielding equities, ETFs, and bonds.
Please who is the consultant that assist you with your investment and if you don't mind, how do I get in touch with them?
My consultant is Nicole Desiree Simon She has since provide entry and exit points on the securities I focus on. You can look her up online if you care for supervision.
Thanks for sharing, I just looked her up on the web and I would say she really has an impressive background in investing. I will write her an e-mail shortly.
Vanguard S and P 500 is my favourite, and best passive investment.
Success with investing starts with this video. As an independent professional money coach in Canada (founder of York Region Money Coaches), passive investing is all I recommend to my clients, and it is all I have done personally for the past 13 years.
Watching this in 2021. Its great relevance shows that passive is the way to go forever.
Sir Benjamin Graham said the more steady you stay in stocks the more you will earn in long run. Same is with index funds they stay steady and reverse is Actively Managed Mutual Funds they are moved a lot by managers hence eroding their own profits.
8:18
"The job of the stock brokers is to transfer the wealth of clients to themselves."
Pang Dennis was very very funny
All investors and traders should watch this!
I always remind myself... if some guy came up with an amazing formula to make (say) 20% returns every year - then why would he share this with you? Surely he’s found the holy grail and all he needs to do is borrow as much as he possibly can at interest rates way lower and just invest it himself... and keep reinvesting in his magic formula.
He’d get rich pretty quickly without having to bother with clients and all the fiduciary duties that brings.
Simple.
Buying individual stocks is like buying lottery tickets. Enough said.
2:40 everything you need to know about the investment business: nobody knows anything
4:11 we cant systematically all pick a winner
5:26 persuading us into funds which the managers themselves wouldn't put their money in
6:36 buying and selling (trading) is like gambling
7:05 (the costs of funds)
The 108 dislikes are likely active fund managers. The ironic thing is active fund managers & advisors most probably have passive funds in their portfolios. Lol
The beauty of index investment is that a normal person can manage it them self's and with some simple mathematics they learn they can understand how they perform against professionals.
In my opinion the risk of a good index portfolio managed by an individual is no greater than a bank account because banks are also subject to market conditions.
Thank You, so many folks have no idea about this topic!
There was much insightful information discussed here. At my company there is a 401k plan. The available funds have 5-10 year names to indicate maturity dates to guide the investor as to how much time before they reach retirement. I'm 55 yrs old, if I want to start to draw down from my account at 65 yrs old, than I would buy into the .....2025 named fund. The higher the number the more time before full retirement, also more volatile equities. Lower numbered funds have more bonds with less risk lower rate of returns. There is an available PCRA personal choice retirement account that allows more funds that can be invested into, limited to no more than 25% of total portfolio. PCRA account has restricted limited pool of funds, possible conflict of interest companies within those funds as restrictions. No individual equities, commodities are allowed to be traded, except the company I work for stock. Thanks for posting informative presentation.
Interesting video about passive investing, an eye opener for a lot of people.
A lot of great stuff hear i can tell years of research behind this. thanks for sharing!!!
Thanks for this excellent and logical coverage of passive investing. I hope it goes viral!
I rank this video as the single best TH-cam video. Period! There are many other great ones, but this one tops them all, IMHO.
Old saying: "Mutual funds are not bought; they're sold."
I experimented my own investment portfolio for 10 years, invested half with a investment firm who also manage very large endowments, I invested other half myself in balanced indexed funds, I turns out my own investment performed 2.8% better, so I moved those portfolio in active managed funds to my own managed index funds. Just think how much money I could have in my portfolio if I went with index investing to start with. I take as my tuition fee paid for learning investing.
That sucks. People who should know where to invest do it worse then cheap passive zero work etf. Thats crazy and sad.
Did the fund manager have a track record of beating the market in a constistent fashion?
If yes then why did he underperform
If not then why did u put your money in his firm?
Best investment video on here. simple, straightforward and the future. great. p.s passive, passive, passive investment funds lol
Nice vid. I like passive investment
Devils Advocate. Will only investment in something like s&p 500 inflate that stocks value causing a bubble
how I wished I saw this in 2012...however better to compound now than compound later :)
I wish I knew what I know now in 2011 about passive investing, sensible strategies and rebalancing etc
Is never too late. Consider owning single solid stocks too to catch up too lol. Higher risk but long-term higher return . Start with well established companies that will be around for another 200 yrs.
@@goodone8041 Sowhich companies might that be, and how would anyone know which ones will be successful long term it's very risky. A Lot of companies don't stay around long enough or don't do very well, I suppose you've got a crystal ball??
82 Active Fund Managers disliked the video. xD
This is a well produced video, congratulations!
I started youtubing because I want to help in the movement I just didn't know how. I am pretty good with finances so I figured if I can provide free information to people it will give them a better foundation which helps with all walks of life.
22 Years old and I’m Starting with Vanguard S&P500 at £1,000 per month - If this video still exists In 15 to 25 years I will post my results.
Good luck to anyone watching this, you’re in the right place and I’d highly advise you to take action on passive investment as soon as possible.
And for anyone looking for the “Holy Grail” either within Forex or Stocks, this is the closet you’re going to get so stop looking.
Sounds like a good plan. And given that you are starting so young, you should do very well. However, I'd be tempted to add an emerging market index to your S&P fund to take advantage of the high growth rates in developing nations. Could maybe go 80% S&P, and 20% emerging markets?
you won't have to, I began with $64.20 in my 401K (10% of my income) and 31 years later, it's $1.2 millions in Fidelity's FXAIX.
The power of compounding and being boring... really works
I'm 54 so if you could post in 15 years just to make sure that I see it. 25 might be too long. Cheers
I owned the s & p 500 during my working years. Was able to get out after 29 years. I lost serious money when I bought growth stocks for two years. Made me more committed to indexing.
Buffett says if you are a full time active investor you should only hold 5-6 stocks...as you can't know 10-20 companies as well as 5-6.....But if you have no interest in stock analysis ALWAYS invest in Low cost Index Funds..he recommends Vanguards.
Thats 100% correct.
I've just had a quimical reaction too: I GET IT!
Good video . Well done . Very helpful .. Thank you ...
Thanks for uploading.
In the 1970s and 80s, Fidelity's Magellan Fund did better than the S&P500, and grew to 10-20B. Its lead manager, Peter Lynch, was often interviewed in the business press. But one day around 1990, Peter Lynch took very early retirement, and the Magellan Fund ceased being the darling of the business press. 1-2 years after he quit, in an interview in Forbes or Fortune etc., Lynch said that most equity investors would be better off investing in an index fund. It was widely speculated at the time that Lynch cracked under the pressure of having to deliver year after year, returns in excess of the S&P 500. Last century, it was common for a successful mutual fund to "close its doors" to new investors. Management admitted that if unlimited inflows were permitted, they would have to invest those inflows in stocks that management did not expect to outperform the market on average. Hence the doors had to be closed in order to preserve the high returns of older investors. Even today, some of Vanguard's traditional funds are closed to new investors.
One of the many advantages of index funds is that they can grow at will and never have to close their doors to new investors. This is important, because I have calculated that Vanguard's index funds are worth about $2.5 trillion as of the end of May 2017. Vanguard's fund indexed to the CRSP value-weighted index (S&P500) is worth about 1.3T (1.1T). An index fund can be managed by computer algorithm. An algorithm that works for a 10B fund also works if that fund grows to 1 trillion. The care and feeding of such an algorithm does not vary with the amount of assets under management; hence Vanguard's economies of scale. If your account at Vanguard's fund indexed to the US stock market is worth over $100M, its management fee is 2 BASIS POINTS. Meanwhile, I read all the time about the managers of DB pension plans and of university endowments charging an unconscionable 80-150 basis points.
thanks for the information.
Thank you for sharing this rational alternative.
In active investing the only people making money are the fund managers.
Yes and no. Mostly yes but some can outbeat the market for many years. Rare ones
Thanks for the video, very helpful!
You just buy into an index like the S&P 500 or plain ETF. Passive investment is saying the best result in the long run is to follow the market's valuation. Active management (including shorting stocks) doesn't perform any better than a broadly diversified market portfolio. Success is down to luck (5% will statistically outperform based on this alone).
The proof is in the characterization of 'dog funds', active investment funds that have underperformed over three years as the video points out.
Another excellent video.
I think the greatest enemy of successful investing is impatience. Passive investing will lead to highly successful results over a 30 year period, but most people want a more immediate reward. Unfortunately, very few market investments will produce results quickly without considerable risk.
Simply wonderful 🥰
Its never crossed my mind to use a fund manager
Well Done
A must see for every investor.
Excellent advice.
Excellent video!
Given perfectly efficient markets above normal returns can only be achieved through luck, thus index fund it is. Or risk free securities like government bonds.
I think there are a few things worth noting, Mutual funds are typically very bad in returning substantial gains with your capital, nearly everybody in the financial industry knows this. Secondly, some hedge funds have different strategies than others, some are more aggressive, some are activists, some trade capital for short gains and leave the market others value invest. What is important when picking a hedge fund is that not only do you have a person you believe in, but the strategy they implement, the stocks they buy is with in your circle of competence. Dont give somebody your money so they can purchase stocks which you dont know anything about, the reason why is that you would know if the investment they made would be good or not. Also, if possible, invest your capital in a hedge fund with liquid capital that has shares in the stock exchange, therefor if you need to get your money out of the company, you can easily trade your stock without the hassle of going through much procedures to withdraw.
well in my country the money in mutual funds is not very liquid, usually associated with 3-5% entry fee (3-5% of your goal/target sum of money, if you want to invest until you reach 100k you pay 3-5k immediately), fund management takes some 2-3% annualy (may change every year, if they change it you may cancel the contract but if you do that in first 2-3 years you are basically screwed and lost money...), then 1-2% from every purchase/investment you make. When you reach your desired amount of money you can increase that for another fee. You also commit to invest on regular basis specific sum, if you want to change this sum you pay some fee. If you want to take out your money you pay a fee for not reaching your goal (if you havent reached it) and you pay 5% of your portfolio as a final fee, there is also some time limit if you apply for withdrawal, several months in most cases. PLUS all of these fees may change any time, in case of "funds of funds" there is no legal obligation to report fees, TER or anything like that. And you do not own the shares of course.
Excellent movie !
surely a passive fund tracking an index with many stocks (particularly the biggest like ftse all share with thousands of stocks) which is market cap weighted would have big transaction costs as it would constantly re-balance hundreds of stocks? As opposed to long-term active fund that has c.50 stocks which has lower turnover? I know the transaction costs are only a part of the overall charges to investors an active fund has but in terms of transaction cost logically passive is more expensive.
Thanks for the video
Cracking video - agree 100%
Who produced and aired this?
My current strategy is: I own 50% of my equities in a total market index, and 50% in a few (3-5, I wish it was 1) actively managed funds, with a great track record of out-performance and low cost.
I do this as a hedge. Because there is a plausible argument that, if most of the market goes passive (i.e. 80% retail investors) stock pickers may start to out perform. It is also easy to monitor your active fund's track record against your index benchmark, when it is half your portfolio. giving you some indication if you should over or underweight each.
@Abitamim Bharmal for the last 20-25 years my active funds have beat the S&P no guarantee it will continue but easy enough to see at a glance. 50% of somebody's active fund must underperform....not necessarily mine.
@Abitamim Bharmal my main active are PRNHX and TRBCX, I've also started to buy ARKK (short track record on this one)
@Abitamim Bharmal well... all my active is growth. Perhaps we enter into a decade where value starts to outperform. (The index owns both growth and value.) Maybe your active managers change and you have to keep your eye on the new blood. When an active fund you favor, starts to lag, it can take a long time to admit it to your self. By going 50/50 you can lean one direction or the other quickly and easily. Your investing lifetime is a long time, seismic shifts can happen in world financial markets. Always have a hedge, don't go all in. (Also... I own 10% GLD)
@@typhoon320i Since 2009 the S&P 500 index has beaten Berkshire Hathaway by some margin
So what are passive investment examples?
It is not a advertisement it is a reality check. It is based on numbers. Index investment usually matches the market were as active investors do no.
I read report of one field of investor who do out perform the market and are way more successful than professional active investors.
And that group is politicians their investment seem to out perform the market which is very suspicious indeed.
Patience Pays
It's been proven time and time again that it is near impossible to beat the average.
I've work in Canada at the Retail Investors section (dealing with clients, selling them : mutual funds, stocks,etf,bonds,mortgage,insurance)... the client if he could have the product for free, he would! Finance people are sadly the less liked, the less trusted, etc etc.. yet people don't take care of their finances, so that's why we exist... We exist to force clients to SAVE MONEY FOR GOALS AND RETIREMENT. The point they say we are getting ''more pay'' is a blatant lie... I saw my income go down 80% while my production was up 9%. Regulations (governement) want to put our fees lower and lower while adding more work, and fee competition due to index+ETF is real!. Also, the industry is trying to get rid of ''Small clients'' through robot-advisors. I do agree with all the index-passive ideas, fees issues, money manager not performing ... but you have to realize... the clients aren't saint either, and the financial industry is in CRISIS (and likely diging more their graves). The governement is also increasing the amount of laws and administratives requirements making our jobs much more ''bureaucratics' and actually force us to hire 1 to 3 assistants just to do form signing (while pre-2008, you didn't need that much documents to justify all your actions. My clients #1 complaining was how much Trees we were burning for clients forms requiring signatures (ex: Opening an Account was 3 documents of 15 pages, needing initials at each Paragraphs and signatures at the end of each page). The real money was made in the 90's. Now, the only people hired on Wall-Street or in finance are Software Engineers. Passive investing will likely be stronger in the USA (due to the size of the market) and eventually China... while ''active managers'' will still have advantage in international and emerging markets, were ''special compagnies'' can still be found and the investings for average people is new. Btw, if you bought an Index US fund in 1999 or 2000... it took 2012 to see your money back.
Investing in a whole entire index like the Dow Jones rather than investing in one company on the index like Microsoft.
What this is technically is investing in every company as opposed to just one.
By the way I am not advocating an index investment based on the Dow Jones because it is too small with too few companies.
sure...has legit points. But I guess nobody should ever strive to do better than the average? Is that the underlying message that everyone should take? So if everyone one just buys ETFs... what will cause the individual stocks to be bought and sold besides index arbitrage funds??? So what is the benchmark against a certain index? Is it ok to lose 30 percent because the index lost 30 percent? Is That ok to accept??
I know plenty of die hard traders who cannot keep up with market growth.
Out of the thousands of companies how do you actually pick the winners what is the general process that you use.
Of course you compete in the Market.
It is very difficult to actually beat the market. I know professionals who have Phd's in fields of financial mathematics who cannot beat the market.
For 99.99999 of the population beating the market is not an option it is a dream.
To beat the market one needs indepth knowledge of several companies. And most arent willing to do the work.and they lose to us with etf/index doing absolutely zero work. Funny
Amazing video. But I don't think passive investing is a free lunch either. Because it still relies on the premise the stocks will always rise over your remaining life. You just have to even diversify further even away from the stock market itself. Consider real-estate as well
+reverse moustache cat The point is to have some diversification in passive investing. Mutual funds + stocks+gold+cash, so no matter what happens you are OK in a general sense. The active part is making sure you have the correct analogy of those depending on the market. Selling high, buying low, keeping winners and basically whatever Graham and Buffet taught.
+reverse moustache cat To clarify, in passive investing you do have clear idea about the position of your portfolio with respect to the market performance which is percentage of market rise (or fall) less very thin fees. That is not the case with actively managed funds, where to earn higher fees, a fund manager will portray very rosy picture of the fund. You will have no clue about the returns on your investment with respect to the market performance.
If the stock market falls apart, and doesnt go back up, you have more worries than just some money in a bank account.
*****
so what's your point. Stay in the stock market anyway since you will have bigger problems if the market never gets up!! Anyways if you were 55 years old in 1998 you would be 65 by 2008 and you would have seen the market returns as negative over 10 years. The same has occurred between 1940-1960, 1994-2000, 1975-1985. So it depends on when you are retiring. No one can stay in the market as conveniently shown on a chart. You need income to live. But if you disagree, but all your money in stocks.
But the vast majority of us out there ïn fact "don't know what we're doing".
All equity funds, indexed or not, invest in individual stocks. This fact means nothing. Vanguard sponsors a raft of actively managed funds. Vanguard does not publish the data needed to compare fund performance for longer than the preceding 10 years. I would like to compare the 40 year average performance of that old index fund warhorse, the 500 Trust, with that of Vanguard's actively managed equity funds (e.g., Windsor) that have been around that long.
I usually hold my positions for less than a minute, now aiming for less than 30 seconds.
25:30 so just because people didnt take advantage of some edge,means theres no edge
As I'm watching each of these passive investing videos from buffet and b ogle I find my slowly selling more of my active funds and buying more of the passive.
good job. passive is the way to go.
Sell them all and go passive!
@@trepan4944 yep. I took my old job pension fund with me and put into a mutual fund to see how it performs. I have less than I put in 2 yrs ago on September 2018. I had enough and decided to get my money out.
@@goodone8041Was that an active mutual fund. Most company pensions appear to be in passive funds now. A balanced fund of index tracking funds at very low cost
how do you know what a passive fund is vs an active fund??
Thanks, I really appreciate such videos..........
it is a lot easier to match the market with index investment and they are also a good long term investment option.
People would be far better investing in index funds than pension funds at least they can gain an understanding of what they are doing and be up to date on issues.
People don't know how. Share your knowledge of how to start
Passive and active management is like oak and fern. oak starts slowly and steady and can survive in shady, bushy fern in first few years, but in 20 or 30 years difference in height is clear.
Very good analogy and very visual. Thanks.
Care to elaborate?
Also yes, even warren buffet said that to the every day man or woman who wants to increase their savings without doing any work, the S&P 500 and indexes alike are fantastic. I dont believe the market is completely efficient though, otherwise, you would not see stocks priced so little compared to what they should be worth and you would not see hedge fund managers make such high profits i.e Bill Ackman, Carl Ichan etc.
Interesting
Not saying active fund management works, but price discovery is important and a number of hedge funds seem to succeed. More likely the good funds are not offered to the public? There is probably some pseudo tracking and it’s not worth paying lavish management fees!
THIS IS GOLD
Investing in low cost index funds is better in developed economies, but in countries like India, actively managed mutual funds perform better than low cost index funds
"this film HAS been funded by a company that specialises in passive investing"
Why wait to the very end for that disclosure? It puts into question everything you have just told us .
Not really. It's just accurately reporting what all the literature on the subject has said for a few decades now.
They put a lot of money into this film, traveling to get interviews with some big names on both sides of the pond. I think it was made to promote index investing in the U.K. That said, there's a lot of truth to it, combined with the authority of the likes of John Bogle, Ken French, Bill Sharpe, Burton Malkiel and more. It reinforces my own experience in investing. Fortunately the film does not come across as an infomercial for a particular product or service.
lol i've been in vemma for over a year, crazy how viral this thing has truly gotten
Some of this is misleading. It says that you have a stake in all the shares in an index which is better than selecting the best shares and leaving the rest out. This leads people to think that there is an equal proportion of each share in an index fund. But this is not true at all. There will only be a trace element of some shares while others will have higher proportions. If you look at the biggest holdings in both an index and an active fund, you will find their biggest holdings are the usual suspects - Royal Dutch Shell, GlaxoSmithKline, BHP Billiton etc - and often in similar proportions. So the reason why a passive fund outperforms an active one is that the management costs are less, and there is probably less tinkering by management, hence less dealing costs.
Guy LaMaupassant S&P. If you are American, please note I am British, and the three companies I mentioned in my original post are typical for British funds. Yes, an index fund paid for by dollar cost averaging is a good way to invest. Warren Buffett recommends them. I'm not going to argue with him. Good luck to you.
Index funds (tracker funds in British parlance) do not weight shares equally but by market capitalisation. Market cap = share price x number of shares outstanding. The market cap X of an index is the sum of the market caps of all shares making up the index. The weight of share i in an index = [(price of share i) x (number of shares i)] / X.
It is very true that index funds are cheap to manage because there are managed by computer, with the help of judicious purchases of stock index futures, no manager is paid a substantial fee for his judgement calls, and because the turnover is lower, resulting in lower brokerage fees. Index funds have lower capital gains distributions, subject to USA income tax.
For the Passive investing to function properly, as it's doing these days, Markets needs to be efficient. By that it means that the individual stock prices must reflect all the available information regarding this individual stock, plus a market risk premium.
this is simply impossible without the active investing. which allows active investors to exploit anomalies and/or mis-pricing in individual stock prices or even the market as a whole.
So, you really can't have one without the other.
It’s just human nature to believe they are smarter than others. I will never worry about we will run out of active investor, just look at all the casinos spreading and doing great business. I just don’t have such delusion.
What percentage of businesses grow faster than the S&P? The problem is all the scams damage the reputation of the industry.
So ETF's it is ...
And even if you do find one that's top notch, the fee's are going to knock you back too far.
If you haven't beaten the market return, then you would have been better served by indexing.
Warren Buffet is not an 'Active Investor'. He's actually what's known as a 'Focus Investor'.
It is closer in style to passive investment.
Is it only me that realise John Bogle does not have the tip of his left pinky? Is he yakuza or something.
CornyRoll I
I think the best companies are van guard and fidelity
Fidelity is a Active Manager Company, there returns are just OFF the CHART. Funny, most (alot) Fidelity Mutual Funds beats the Index, their Benchmarks (peers), competition and categories... yet they among the most expensive funds.
to be honest, this is just a 5 minute advert for passive investment played in a loop a little over 10 times
*Works For Me 777*
Most of the data shows that active investors are less successful that the market.
I have also seen stock go up by 400% but it looks easy after it happens.
But it could just as easily go down by 400%. When the crash happened I bought shares in a bank that dived massively and in the space of a day they went bank up massively.
I recognized the signs of what was happening and capitalized but that does not happen that often I would be very lucky if I did.
Stocks can only go down by 100%, unless you are using leverage.
How is it even possible that the market goes up every year? Shouldn't it look more up and down ish? Weird
Well, all countries are progressing, technology is improving population is higher more people working and buying things online more cars more fuel is needed ect only thing that will bring it down is WW3 otherwise we not going downhill.
A bit strange how Barnet Ravenscroft only take on clients who have over a million pounds to invest with them
But the reality of probability makes it impossible to be able get it right enough so as to make growth that is better than the market.
Actually it is impossible for the mass majority of people. You could study companies for months and it could still not turn out as you would like.
Companies have most profits and great dividends and their value has still gone down.
You are correct there is no such thing as luck but for the 99.99999% of the population it is luck.
The major interest of Fund Industry is to make money for themseilves not for the investors, like your Banks manager wants to make good investments for the Bank NOT for the client. the manager works for the bank not for you.
7:50 pin stripe suit = run away fast.