Searching for the holy grail: Is passive investing the answer?
Passive management continues to attract both headlines and additional fund flows from investors due to low fees, simplicity and strong recent relative performance in numerous asset classes. In some cases, passive investments are not only less expensive, but also the optimal choice for investors. However, at times investors can be hardwired to lose money by observing recent information and extrapolating that information into the future as a certainty. Investing solely in what has recently done well can lead to suboptimal outcomes for investors. The recent attention given to passive investing as superior to active management fits well into this flawed behavior. In fact, investors may be surprised to learn that passive investments have as much peer group volatility as those with active management, and do not consistently provide median or above average peer group ranks over long periods.
At RSM US Wealth Management LLC, we strive to not be dogmatic about the active-versus-passive decision and instead look for empirical evidence to support the best after-fee portfolio for our clients.
Learn more about the ongoing active-versus-passive debate by reading our full article.