Why Settle for Average?
With the recent flood of Wall Street Journal articles about passive investing, now is a good time to review the space. Money is pouring into firms like Vanguard and iShares, the leaders in the indexing revolution. Investors are seeing that despite perennial declarations of a “stock-picker’s market”, active managers consistently trail their benchmarks and charge large fees for the privilege of doing so. You’ll see below that I am an advocate of passive investing, but only when it’s done correctly. There are plenty of opportunities to use passive incorrectly or to get ripped off by a non-fiduciary product seller. What is passive? A passive investment is just a rules-based strategy. Technically, there should be a corresponding index. For example, if the rule is to weight the investment based on the number of vowels in the company’s name, there should be a high-vowel index that the strategy would use as a…