Vanguard founder Jack Bogle started the debate of active versus passive investing when he created the first index fund in 1975. Hundreds of additional index funds, countless studies, and one historic recession later, passive investing has become a household concept and is accepted as the preferred method of investing for millions of investors.
You’ve seen the headlines and stats by now:
• We’ve reached the end of active investing.
• Billions of dollars are flowing from active to passive funds.
• 90 percent of active stock managers fail to beat their benchmark.
If you’ve been following this debate for years as I have, you’ve also probably seen the counter-arguments, of which there are many.
This is the wrong discussion. The reality is, when it comes to managing investments, there’s room for both philosophies.
Diplomatic, I know.
First of all, when we talk about active versus passive investing we’re really having two separate discussions. The first is asset allocation, the second is what you do within that allocation. Here’s how I think about each.
Managing Your Allocation