The regulators thoughts on passive vs active

dunstonh

bostonerimus wrote: »

Can't agree with you on that one.

Thats because you are based in the USA and do not use UK domiciled funds. If I was in the US, I would do the same as you.

point5clue

For me personally the attraction is not that a global tracker is going to outperform other forms of investment, but rather that for very little effort it is unlikely to perform badly over the long term. By picking active funds you need to make and regularly review decisions, and deal with the anxiety of whether you have made the right choices every time you hear some news article, blog post or forum comment arguing for different strategy, or such and such a sector/asset class etc is better/worse/about to collapse.

I find now each time a read things like that I am reassured that my global tracking strategy is 'good enough' to meet my long term objectives.

Freedom from anxiety is worth a lot to me personally.

bostonerimus

point5clue wrote: »

For me personally the attraction is not that a global tracker is going to outperform other forms of investment, but rather that for very little effort it is unlikely to perform badly over the long term. By picking active funds you need to make and regularly review decisions, and deal with the anxiety of whether you have made the right choices every time you hear some news article, blog post or forum comment arguing for different strategy, or such and such a sector/asset class etc is better/worse/about to collapse.

I find now each time a read things like that I am reassured that my global tracking strategy is 'good enough' to meet my long term objectives.

Freedom from anxiety is worth a lot to me personally.

Very nicely put. I'm a passive investor as it maximizes the chances of investing success rather than maximizing the potential gains or losses, but the fact that I don't have to worry about when to get in or out of an emerging market fund is also important to me. It's also an approach that is simple to implement so you can DIY and save some of the advisor fees that people in the UK seem all too willing to pay.

atush

cashbackproblems wrote: »

My active funds have outperformed the passives over the last 5 years, however i only invest in managed funds for specific sectors such as small caps, india, technology, frontier markets, latin america and AIM funds. This is as mentioned above passives are not an option plus even if they were a fund manager can add lots of value, and filter out the crap. Just be aware of managed funds with 300+ holdings, its basically a passive with an active fee.

Also as vanguard now offer super low cost direct investing, i am more inclinded to go this way than pay hl 0.45

Yes., where active investing has an advantage is in areas like Frontier markets and some emerging markets.

Thrugelmir

bostonerimus wrote: »

over 30 years my average annual return has been just over 8% which is a 1000% return in total.

Timing of when the investment was made is critical though. With income reinvested the return on the Dow Jones Industrial to the 31/12/2016 is as follows:-

30 years 10.902%
20 years 8.214%
16 years 5.863%
15 years 7.285%
10 years 7.527%
8 years 13.860%
5 years 13.58%
3 years 9.615%
2 years 8.018%
1 year 15.196%

Would appear that the latter years have been extremely kind to your averages. As the FED adopted a benign fiscal policy for the last 10 years. Be interesting to track this going forward. Now that the commencement of a different tack has been announced.

bostonerimus

Thrugelmir wrote: »

Timing of when the investment was made is critical though. With income reinvested the return on the Dow Jones Industrial to the 31/12/2016 is as follows:-

30 years 10.902%
20 years 8.214%
16 years 5.863%
15 years 7.285%
10 years 7.527%
8 years 13.860%
5 years 13.58%
3 years 9.615%
2 years 8.018%
1 year 15.196%

Would appear that the latter years have been extremely kind to your averages. As the FED adopted a benign fiscal policy for the last 10 years. Be interesting to track this going forward. Now that the commencement of a different tack has been announced.

I've had a basic 60/40 passive portfolio for the past 30 years that can be easily back tested. I've added to it and rebalanced. I'm now retired and have drifted up to 70/30 with the recent stock market run up and I'll probably keep it there for the foreseeable future.

Audaxer

point5clue wrote: »

For me personally the attraction is not that a global tracker is going to outperform other forms of investment, but rather that for very little effort it is unlikely to perform badly over the long term. By picking active funds you need to make and regularly review decisions, and deal with the anxiety of whether you have made the right choices every time you hear some news article, blog post or forum comment arguing for different strategy, or such and such a sector/asset class etc is better/worse/about to collapse.

I find now each time a read things like that I am reassured that my global tracking strategy is 'good enough' to meet my long term objectives.

Freedom from anxiety is worth a lot to me personally.

I agree with what you say, but in retirement at the deaccumulation stage, for decent level income/dividend generation I think you need active funds or investment trusts as they have higher yields than passive funds.

bostonerimus

Audaxer wrote: »

I agree with what you say, but in retirement at the deaccumulation stage, for decent level income/dividend generation I think you need active funds or investment trusts as they have higher yields than passive funds.

Income is just as good from capital gains as it is from dividends or interest. My passive index portfolio produced about 2% yield, but it gained by 12.5% over the last 12 months and that's a nice bit of income.

Eco_Miser

bostonerimus wrote: »

Income is just as good from capital gains as it is from dividends or interest. My passive index portfolio produced about 2% yield, but it gained by 12.5% over the last 12 months and that's a nice bit of income.

People say that, and in one sense they're right; but taking an income from capital gains means selling - which involves decisions (how much do I need? Is the market down too far to sell?) and in my case costs an explicit fee, whereas just taking the dividends involves no thought and no additional fees, the money just turns up in my bank account. For a person of advancing years and reducing cognitive ability, this is worthwhile.

Linton

point5clue wrote: »

.....
By picking active funds you need to make and regularly review decisions, and deal with the anxiety of whether you have made the right choices every time you hear some news article, blog post or forum comment arguing for different strategy, or such and such a sector/asset class etc is better/worse/about to collapse.
.....
.

Not true at all, no more than you would need to with a set of trackers.

My growth portfolio is 100% active. It is never changed in response to news, blogs or posts. Active funds are used to get the overall asset allocation I want, one that is rather different to a global index with 50% small companies and significantly less in the US. The only changes made are for rebalancing. VLS100 has been used as the benchmark but that may change to the FTSE World as outperforming VLS100 has been too easy.

My income portfolio is again 100% active, the record of trackers providing a decent income is pretty poor. Again it doesn't change in response to news, blogs, or posts.