Every time I read about the “active vs. passive debate” I can feel my blood pressure go up.
There is no “debate”. The only people perpetuating this myth are those who make a living touting active management and those who don’t know the facts.
Proponents of active management like to muddy the waters by talking about how markets aren’t “perfectly efficient” and asking “What about Warren Buffett?”
There may well be inefficiencies in the market, but it’s unlikely you can exploit them. You have a lot of competition, including institutional investors, with vast resources, who account for upwards of 80% of trading. They will probably be on the other side of your transaction. Are you smarter and better informed than these sophisticated investors?
It’s not impossible to beat a portfolio of index funds. But the odds of doing so are so small (especially after taxes) it makes no sense to try.
If you had access to Warren Buffett, he would tell you to invest in index funds and avoid those who claim the ability to “beat the market.” That’s precisely the direction he gave to the trustee of his estate.
Don’t believe it when you’re told there are “good arguments on both sides.” There aren’t.
The perpetuation of the active vs. passive debate myth is the single biggest obstacle standing between you and retirement with dignity.
Don’t fall for it.
Resource of the week
I delve into this issue in more detail, and explain how this faux “debate” harms investors, in this blog.
Video of the Week: Frenemies
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