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| Name | “Passive” Investing Is a Myth. |
| Video Uploader | Video From Optimized Portfolio |
| Upload Date | This Video Uploaded At 16-07-2023 11:00:05 |
| Video Discription | I'm a proponent of index investing, buying broadly diversified funds that hold a basket of investments, preferably at a low cost. I've even probably used the term “passive” cavalierly in other videos. But in this one I'll explain why the idea of “passive” investing is a myth. // SUMMARY: The term “passive” arguably gets thrown around most in Boglehead circles. These are followers of the late Jack Bogle, founder of Vanguard and considered the father of index investing. He espoused the benefits of low-cost index investing for retail investors over more expensive active managers who pick individual investments and almost certainly underperform their benchmarks over the long term. People tend to forget that these indexes – of which there are thousands – are still created by humans in a room at the end of the day. There are many decisions to be made about how the index will be built, how often it will be updated, how cash flows are handled, whether or not to use derivatives, etc. Realize that an index fund is still just a portfolio of investments managed by people making plenty of active decisions. Finance researcher Adriana Robertson maintains that index investing is just “delegated management, where the delegee is the index creator.” She further submits that the idea “that market indices are ‘passive' in some meaningful sense” is “a pervasive misunderstanding.” Even a broad index like the S&P 500 is constructed by a Standard & Poor's committee and screens for profitability and market capitalization, and then eligible stocks are hand-selected for inclusion (remember Tesla?). We still consider it a barometer for the entire U.S. stock market even though its 500 constituents comprise a mere 1/10 of the investable universe of about 5,000 U.S. stocks. The kicker is that because there must be some minimal liquidity requirement for a fund to be able to trade securities, by definition we cannot buy that entire universe. This is the fundamental reason why truly passive investing simply doesn't exist. A generous explanation is that the active vs. passive waters are at least extremely murky. However, like Robertson and Ferri, I submit that there is no such thing as “passive” investing and that one's portfolio and the management thereof simply sit somewhere on the scale between minimally active and very active. So the decision is not active vs. passive, but rather how active you want to be. Read the blog post here: https://www.optimizedportfolio.com/passive-is-a-myth/ Adriana Robertson's research paper "Passive in Name Only: Delegated Management and 'Index' Investing" here: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3244991 #passiveinvesting #indexinvesting #passiveinvestor // INVEST ► M1 Finance: https://optimizedportfolio.com/go/m1 ► My comprehensive review of M1 Finance: https://www.optimizedportfolio.com/m1-finance-review/ ► Get my dividend portfolio: https://www.optimizedportfolio.com/m1-finance-dividend-pie/ ► Lazy Portfolios: https://www.optimizedportfolio.com/lazy-portfolios/ ► Beginners’ reference guide (updated regularly): https://www.optimizedportfolio.com/beginners-start-here/ ► Webull (for stock traders; get 2 free stocks): https://act.webull.com/kol-us/share.html?hl=en&inviteCode=iKJHc5TS9HSe // SOCIAL ► Website: https://www.optimizedportfolio.com/ ► Patreon: https://www.patreon.com/optimizedportfolio ► Facebook: https://www.facebook.com/optimizedportfolio/ ► Instagram: https://www.instagram.com/optimizedportfolio/ ► Twitter: https://twitter.com/OptimizedPort ► Support my channel by shopping on Amazon (free for you): https://amzn.to/2TLCgCc I appreciate all the support! Disclaimer: This is not financial advice, investing advice, or tax advice. The information presented is for informational, educational, and entertainment purposes only. Investment products discussed are for illustrative purposes only. It is not a recommendation to buy, sell, or otherwise transact in any of the products mentioned. I always attempt to ensure the accuracy of information presented but that accuracy cannot be guaranteed. Do your own due diligence. All investing involves risk, including the risk of losing the money you invest. Past performance does not guarantee future results. Opinions are my own and do not represent those of other parties mentioned. Read my lengthier disclaimer here: https://www.optimizedportfolio.com/terms/ Disclosure: Some of the links above are referral links. At no additional cost to you, if you choose to make a purchase or sign up for a service after clicking through those links, I may receive a small commission. This allows me to continue producing high-quality content on this channel and pays for the occasional cup of coffee. I have first-hand experience with every product or service I recommend, and I recommend them because I genuinely believe they are useful. |
| Category | Education |
| Tags | passive investing | passive investing for beginners | passive investment strategy | passive investment ideas | passive investing bubble | passive investor | passive vs active | passive vs active investing | active vs passive investing | active vs passive investing performance | active vs passive investment strategy | active vs passive investor | index investing | index investing for beginners | index investing 2023 | index fund | index funds |
