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Why pay for poor performance
New Dow Jones report proves that active management is not worth the cost
Legal Disclosure: Tony Robbins is a board member and Chief of Investor Psychology at Creative Planning, Inc., an SEC Registered Investment Advisor (RIA) with wealth managers serving all 50 states. Mr. Robbins receives compensation for serving in this capacity and based on increased business derived by Creative Planning from his services.
“Don’t do something. Just stand there.”
Vanguard founder John Bogle has been heralding this advice to investors for years, and a recent study by the S&P Dow Jones Indices indicates we should have been listening to Jack all along.
The SPIVA® U.S. Scorecard has been dedicated to documenting the real numbers of the “active vs. passive” management debate for the last eleven years, taking into consideration such data sets as survivorship bias and style drift, and giving a clear picture of the effectiveness of either passive or active management in your portfolio. This year’s data, ending on June 30th, 2015, makes evident the current outcome of this debate. With few exceptions across asset classes, the performance of active managers is underwhelming.
Unless otherwise noted, these results are from the past year.
Now, there are a few ‘unicorns’ within the active management world – those truly exceptional individuals that can give outstanding returns.
Unfortunately, those are mostly inaccessible to the vast majority of investors, operating at capacity in closed funds. “There are good active managers that can beat their benchmarks,” Ana Soe, senior director of index research and design at S&P Dow Jones Indices, reminds us.
However, she follows this reassurance with, “You can’t expect outperformance on a consistent basis.”
The problem is you are paying on average 3.17% for performance that at best fails to ‘consistently’ beat the benchmark. With the cost of compounding fees eating into your returns that are already below the indices, your portfolio – and your financial future – is suffering unnecessarily.
Take Mr. Bogle’s advice; buy the market through an index and hold on for the ride.
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