What caught my eye this week.
I often fret that we don’t bang the drum enough for passive investing on Monevator these days.
It’s not that we’ve changed our minds that using index tracker funds is the way forward for most investors. Far from it!
It’s more that if you bang a drum every week, you start to feel like a slave – and regular readers start to get a headache.
Monevator made its bones championing passive investing more than a decade ago, when coverage was scant in the mainstream British media. There’s a ton of articles [1] in our archives on why and how to do it.
Maybe we should update and republish them more often, to give them a fresh airing?
The trouble with a blog – unlike with a book, say – is you never know where someone is starting from. A reader could be on their 500th article, or their first.
I should use our fancy new email system to create some kind of automatic crash course in passive investing for new subscribers [2]. Watch this space…
For the record, though, unless you have special access, some rare edge [3] in selecting winning active funds – or you have non-standard aims like ESG investing or a desire for an unusual return profile – than the evidence supporting index funds has only grown.
Most people accept this nowadays. Even active manager redoubts like the personal finance section of the Financial Times [4], which wrote this week:
In the first six months of this year, nearly two-thirds (60 per cent) of actively-managed equity funds have fallen further than the market.
Yes, you read that right.
Actively-managed funds — where you pay extra for a team of well-remunerated fund managers to cherry pick stocks they think will outperform — have actually under-performed cheaper passive funds that simply track the nearest comparable index.
There’s also an interesting table showing how active managers have performed over ten years.
Note that some of the apparent better-than-average success – such as 63% out-performance in the UK market – can typically be explained by factors such as holding more small companies than the benchmark. (And if so, this might be replicated more economically by getting broad cheap exposure via a tracker fund, and marrying it with say a 20% allocation to small caps.)
Some of the outperformance though will be genuine alpha generated by skillful stockpickers. Never think active managers are lazy or stupid!
The opposite is true, which is why they find it so hard to beat each other. (The maths also guarantees a worse than average performance [5], after fees).
Slim pickings
I’m an active stockpicker [6], remember. I don’t think beating the market is the stuff of myth and magic.
No, the difficulty is you identifying who will beat the market ahead of time.
Get it wrong – as you probably will, statistically-speaking – and you’ve wasted 30 years in more expensive funds. You will retire poorer as a result.
Who needs you to take that risk? Only active fund managers, whose big salaries depend upon it.
So much for funds – here’s some evidence this week from Alpha Architect [7] that most of us shouldn’t be picking stocks, either. Ho hum.
Have a great weekend everyone.
From Monevator
We’ve overhauled our broker comparison [8] table – Monevator [9]
From the archive-ator: Something to lose – Monevator [10]
News
Note: Some links are Google search results – in PC/desktop view you can click to read the piece without being a paid subscriber. Try privacy/incognito mode to avoid cookies. Consider subscribing if you read them a lot!1 [11]
Martin Lewis warns households face £3,500 energy bills come winter – Yahoo Finance [12]
Britain’s financial regulator unveils Consumer Duty for financial service firms – FCA [13]
US GDP falls for second quarter in a row; in technical recession – CNBC [14]
UK inheritance tax receipts jump 14% in a year to £6.1bn – ONS [15]
Pension tax change to boost take-home pay for low earners – Which [16]
Inflation sees average family spend £89 more a month on energy, food, and fuel – Guardian [17]
UK car production nearly 20% down on last year – ThisIsMoney [18]
[19]
The world has become less colourful [Thread] – via Twitter [20]
Products and services
Savings choices at a time of high inflation [Search result] – FT [21]
What are numberless cards, and could they help stop fraud? – Which [22]
Parents urged to buy school uniforms early amid supply problems – Guardian [23]
Open a SIPP with Interactive Investor and pay no SIPP fee for six months. Terms apply – Interactive Investor [24]
Virgin Money ups its ‘linked’ savings account to a table-topping 1.71% – ThisIsMoney [25]
Energy support bill: who is eligible for the £400 discount? – Guardian [26]
Rich People’s Problems: “Should I ditch my Amex Centurion card?” [Search result] – FT [27]
Seven things to know about the new pre-paid funeral plans – Which [28]
Homes for sale with car-charging points, in pictures – Guardian [29]
Comment and opinion
More Hemingway, less Faulkner – Fortunes & Frictions [30]
Knowing what not to do and not doing it are different things – Behavioural Investment [31]
Staying rich – Humble Dollar [32]
Large fries with that? – Sex Health Money Death [33]
Are kids worth the cost? [A couple of week’s old] – The Root of All [34]
Interview with The Escape Artist [35] about financial independence [Podcast] – ThisIsMoney [36]
‘This time it’s different’ and other investing fallacies – Darius Foroux [37]
How to make your grandchild a millionaire on £2,800 a year – ThisIsMoney [38]
Three keys to successful investing – Novel Investor [39]
What the Fed’s big balance sheet unwind means for markets [Podcast, nerdy] – Oddlots [40]
Spend more mini-special
The other side of investing – Banker on FIRE [41]
Why this advisor tells his clients “retirement is obsolete” – Think Advisor [42]
What about all the FUN debt gave you? – Budgets are Sexy [43]
Naughty corner: Active antics
Howard Marks: I beg to differ [PDF] – Oaktree Capital [44]
Bonds attractive after first-half ‘horror show’ – Bloomberg via Wealth Management [45]
Buffett’s pension – Humble Dollar [46]
A collection of charts showing how markets will confound you – Compound Advisors [47]
Be grateful for your trading losses – All Star Charts [48]
There’s an ecosystem of [US] ETFs trading around Cathie Wood/ARK’s own products – Yahoo Finance [49]
Crypto corner
Tim O’Reilly on how Web 3 compares to Web 2.0 [Podcast] – Rational Reminder [50]
Kindle book bargains
The First Minute: How to Start Conversations That Get Results by Chris Fenning – £0.99 on Kindle [51]
Thinking Better: The Art of the Shortcut by Marcus du Sautoy – £0.99 on Kindle [52]
Banking On It: How I Disrupted an Industry by Anne Boden – £0.99 on Kindle [53]
Amazon Unbound: Jeff Bezos and the Invention of a Global Empire by Brad Stone – £0.99 on Kindle [54]
Environmental factors
The audacious Big Oil PR plot that seeded doubt about climate change – BBC [55]
Where will the new Sizewell C nuclear reactor get its water from? – Guardian [56]
Human pathogens are hitching a ride on floating plastic – Hakai [57]
…and many more downsides of a wipe-clean world – BBC [58]
Air conditioning is a climate disaster and Bill Gates is investing in this startup to fix it – CNBC [59]
Tiny turtle rescued from a Sydney beach pooed ‘pure plastic’ for six days – Guardian [60]
Singapore is turning multi-story car parks into farms – BBC [61]
Deepwater windfarms’ turbulent future – Hakai [62]
Off our beat
Remote, hybrid, or in-person? – AVC [63]
Milder recessions, wilder careers – Dror Poleg [64]
Tails, you win – Morgan Housel [65]
How robots can help us act and feel younger – IEEE [66]
The pandemic-era impulse purchases we grew to hate – Vox [67]
90% of spreadsheets contain errors – Klement on Investing [68]
And finally…
“If you live for having it all, what you have is never enough.”
– Vicki Robin, Your Money or Your Life [69]
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