In 2012 we created a series of blog posts based on the “Passive Investing” video series from SensibleInvestingTV.
The 8 part series is as relevant today as it was then and so here is the complete set.
Part 1: The Outperformance Myth
How the £4 trillion invested by UK fund managers more often than not produces a below-average return and fails to match, never mind beat, the average market return over the long term. Are the fund managers as smart as they like to think they are? Financial gurus John Bogle, Charles Ellis and Ken French, amongst others, think not.
Part 2: The Cost of Investing
How expensive is active investing? Rising fund management charges, many of which are hidden, have a massive effect on the returns investors receive. For putting up 100% of the capital and 100% of the risk, investors receive only around 30% of the market return. Who gets the 70%? You’ve guessed it…
Part 3: A Better Alternative
Passive investing costs less, but produces a higher than average return after costs in the long term. Here’s how it works. Nobel Prize-winning economist William Sharpe describes his Capital Asset Pricing Model, the mathematical foundation of passive investing. Also includes an explanation of the Efficient Market Theory from Ken French, who developed the theory with Eugene Fama. Additional comment from Dan Goldie (The Investment Answer), Weston Wellington, Laurence Gosling (Investment Week), Ben Johnson (Morningstar), Tim Hale and Prof. Stephen Thomas.
Part 4: Ultimate Diversification
Passive investing aims to ‘capture the market’ and diversification is key to achieving this. Avoiding ‘putting all your eggs in one basket’ by investing in a low cost, widely diversified passive portfolio allows you to reap the higher rewards of riskier assets whilst smoothing out some of the volatility. Featuring interviews with Dan Goldie, Prof Anthony Neuberger, William Sharpe, Laurence Gosling, David Booth, Weston Wellington, Charles Ellis and Bill Bernstein.
Part 5: A Healthier Way to Invest
Money is the single biggest cause of stress in the Western world; today, spending and investing wisely has never been more important for our wealth AND health. The rational, emotion-free and proven approach of passive investing takes the stress out of watching the markets rise and fall, and makes for a more successful investing experience. Featuring contributions from Bill Bernstein, David Booth, Prof. Karen Pine, Anu Bennett, Laurence Gosling, Jasmine Birtles and Richard Wood.
Part 6: Hooked On Active
If passive investing is such a no-brainer, why is the active alternative still so popular? The answers lie in the fund management industry itself. The passive approach is great for the individual investor, but much less profitable for the fund managers (even though they know – and frequently admit – that it makes sense). But lack of awareness among investors and the illusion that experts can always beat the average market return has ensured that, until now, emotion has outweighed evidence.
Part 7: The Tide Is Turning
Passive Investing is becoming more popular in the US and the evidence is that it’s beginning to take off in the UK. With investment costs higher here than almost anywhere else in the world, the potential for growth is huge, and the trend towards passive is gathering momentum. Featuring Vanguard’s Bill McNabb and Gus Sauter, Ken French, William Bernstein and Jasmine Birtles along with Richard Wood and Igors Alferovs from UK wealth management firm BRWM.
Part 8: The Rational Choice
In the final part of our documentary Burton Malkiel, renowned economist and author of A Random Walk Down Wall Street, explains how the principles of passive investing have held firm over the past three decades. The film also shows how fund managers are kidding themselves and their customers when they declare they can beat the market on a regular basis. Featuring Weston Wellington, Rick Ferri, Jasmine Birtles and Richard Wood, Presented by Robin Powell.
Duncan R Glassey
Senior Partner – Wealthflow LLP
This article is distributed for educational purposes and should not be considered investment advice or an offer of any product for sale. This article contains the opinions of the author but not necessarily the Firm and does not represent a recommendation of any particular security, strategy or investment product. Information contained herein has been obtained from sources believed to be reliable, but is not guaranteed. Past performance is not indicative of future results and no representation is made that the stated results will be replicated. Errors and omissions excepted.