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No. of Recommendations: 1
Hello All:
I just noted new article on active vs passive debate located at: www.spglobal.com/releases/spiva.pdf. Apparently. SP 500 has outperformed active managed large cap 63%. This is a dip from 80% figure usually mentioned. Perhaps an indivdual has greater chance to beat index in bear markets? What do you all think?
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No. of Recommendations: 14
The article is EXTREMELY deceptive because it only picks the last 5 year cycle ONLY. If the article wanted to be fair, it would have used FIVE YEAR ROLLING PERIODS for as far back as it could.

These are the true statistics:

Over every FIVE year rolling period, the S&P500 and the Wilshire 5000 (Total Stock Market) indices have beaten ALL managed money 80% of the time.

Over every TEN year rolling period, these indices beat ALL managed money 95% of the time.

Over every TWENTY year rolling period, these indices beat ALL managed money 98% of the time.

The article posted simply cherry picks the ONE five year period where active management looks (a little bit) better than passive management. It just so happens that coincidentally, this five year period was the last one.

IMO, this does not justify paying 10 to 20 times the portfolio costs to own actively managed stock mutual funds that sorely underperform their indices.

Every time a stock is traded, whether in a mutual fund or in a privately owned portfolio, there are commissions, spreads, and taxes. Managed mutual funds may also have front and back loads, marketing fees, and management fees on top of this. Add all these fees together and you're looking at about 3% of assets per year (not counting your personal taxes!!!). Actively managed funds are a fool's game.

Thus, the typical managed fund mutual fund investor better forget about the 4% rule. He'd better be thinking the 1% rule since his fees are eating 75% of his annual retirement income.
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No. of Recommendations: 6
Hello All:
I just noted new article on active vs passive debate located at: www.spglobal.com/releases/spiva.pdf. Apparently. SP 500 has outperformed active managed large cap 63%. This is a dip from 80% figure usually mentioned. Perhaps an individual has greater chance to beat index in bear markets? What do you all think?



Only if 5 years ago in 1997 you abandoned the index fund and were smart enough to invested in one of the 37% of funds that beat the index. Now, how many people did that? How many people knew in 1997 that 2000 on would be a bear market???

“It's different THIS time” is a phrase that an investor should NEVER believe.


Leolo
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No. of Recommendations: 0
Apparently. SP 500 has outperformed active managed large cap 63%. This is a dip from 80% figure usually mentioned. Perhaps an indivdual has greater chance to beat index in bear markets? What do you all think?

I think that managed funds held cash, which was not in any of the stock indexes. They hold cash to meet redemptions and because it may take a while to find stocks where the manager wants to put new money or money from selling stocks (s)he doesn't want to hold any more.

That cash drags down performance when stocks advance, and bouys performance when stocks decline.

I own one managed fund outside of tax-advantaged 401ks and IRAs. It declined in 2000, but I was hit with capital gains (some short term!) on which I had to pay taxes...even though it lost money. So, for people investing outside of tax-advantaged accounts, their after tax returns might not be as good as the raw numbers reported, because of short-term gains (higher tax rate) an having to pay those taxes each year on funds that churn stocks.

Hey--my savings bonds have beat 95% of all managed stock funds and stock index funds...over the last 2.5 years. If we want to pick certain time frames to compare, we can come up with all sorts of forced comparisons. If ya' really get selective on the time periods, you could beat stocks handily by investing in collectible postage stamps and fine art. You could also make a case for lottery tickets, by picking only those weeks in which you win and neglecting the weeks where you lose.
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