Financial Commentary

Index funds consistently outperform actively managed funds.

For many years, pundits have commented on the so-called active vs passive debate. In short, should individual investors buy funds managed by professionals that attempt to beat the market, or should they instead just buy the market index?

In my most recent article, I review the data on active vs passive investing. After investigating the facts, it’s clear that this debate is nothing more than a marketing gimmick—after all, fund managers can make millions. Year after year actively managed funds underperform their index benchmarks, after fees. And those that do, fail to sustain that outperformance after only a few years.

As a parent, I never tell my kids to be passive, minimize effort and strive to be average. But investing is counterintuitive. The more effort you put in, the more likely you are to underperform. That’s why, in investing, it pays to be passive.

Previous Blog Articles

• How Much House Can You Afford

• The Cost of Children

• Is Real Estate a Good Investment

• Should You Pay Off Your Mortgage

• Four Steps to Successful Long-Term Investing

• Can You Afford to Maintain Your Living Standard

• What to Know about Risk and Stock Market Volatility

• How to Create an Effective Estate Plan

• Conventional Planning Fails to Provide Sound Advice

Should I refinance my mortgage?

A refi involves upfront costs in exchange for reduced future payments. Thus, the value of any future savings depends on how long you’ll be in the home. This calculator estimates how many months you need to stay to breakeven.

Should I buy or lease my next car?

If you plan on keeping the car for more than the term of the lease, it’s better to buy it. Short-term leasing, rather than long-term buying, boils down to paying a premium for the newest model every few years.

How should I invest a large sum of cash?

Bite your lip and invest it all at once, especially if it’s for the long-term. Investing gradually over time is, on average, a losing bet because markets tend to go up. Yes, it can protect you from downside risk. But, if this strategy scares you, rather than trying to time the market consider taking less risk with you investments.

What should I do with the IRA I just inherited?

Unless you are an eligible designated beneficiary, like a spouse, you’ll have to liquidate the account by the end of the 10th year following the year of death. Consider rolling the account to a discount broker, taking annual draws to best manage taxes, and saving after-tax proceeds to a Brokerage account.