Investors are coming around to the facts about their chances of successfully beating the stock market over any period of time. As we’re fond of saying here, taxes and expenses matter as much as any other investment decision you make. The Wall Street Journal recently picked up on the success of Dimensional Fund Advisors, whose mutual funds we use in our passive portfolios.
According to the article from the Journal, the percent of funds that are actively managed has fallen from 84% to 66% over the past ten years. The reason? Performance.
“Performance is driving the upheaval. Over the decade ended June 30, between 71% and 93% of active U.S. stock mutual funds, depending on the type, have either closed or underperformed the index funds they are trying to beat, according to Morningstar.” Source: WSJ
It seems investors are seeing past the marketing of active managers and recognizing the data contained in the research that supports passive investing. According to the Wall Street Journal, Dimensional Fund Advisors is now the sixth largest fund manager in the country. (Vanguard, another passive fund company, tops the list.)
Our mission is to help our clients understand the effect high turnover in actively managed funds can have over time. The constant turnover of a portfolio leads to high expenses and even higher trading costs, some of which isn’t disclosed to the fund’s investor. Over time, these costs of investing can remarkable impacts on a portfolio, eating away years of retirement income in the process.
This is why we remain committed to advocating for passive investing and why we focus on helping our clients identify their financial goals and then help them construct a plan that helps them achieve their goals as efficiently as possible.