Active Investing: Secrecy, Special Arrangements and Ethical Problems

Photo by PicketAces, Thomas Picard, Brooklyn, N.Y.

Active retail investors earn lower returns than their passive counterparts—it is a major theme here at Later Living. Today I’ll add one more argument for passive investing: active investing exposes retirees and others to greater likelihoods of dishonesty and conflicts of interest.  Continue reading

How Much Does Active Investing Cost Retirees?

An active investor. Photo from Celal Teber, Teber Photography, United Kingdom

A great deal!—to answer the title question. Three examples will illustrate the loss associated with active investing, or, stated positively, the gain from passive investing. The examples build on last week when I showed that active and passive investing had to achieve the same average gross returns. Yet active investing costs more, so in the end, the net returns to retirees are smaller with active investing.

Active investing links retirees with financial planners, brokers and actively managed mutual funds. Active investors believe they can identify low-priced stocks to buy, or that they can predict which stocks will drop in price so they can sell. In addition to individual stocks and bonds, they often buy actively managed mutual funds where a fund manager does the buying and selling. Continue reading

Who Wins—Active or Passive Investors?

The Investment Race

Many retirees invest passively by buying shares in low-cost index funds that are designed to track selected markets. I have illustrated that approach in previous posts.

Many other retirees, and many younger investors, actively manage their investments. Some retirees do their own research and analyses while others hire brokers, financial planners or other advisers to manage their investments. They hope to achieve superior performance—to beat the market—by relying on extra effort, knowledge and skill.  Continue reading