The passive investing trap

Discuss all general (i.e. non-personal) investing questions and issues, investing news, and theory.
Post Reply
overthought
Posts: 161
Joined: Tue Oct 17, 2017 3:44 am

The passive investing trap

Post by overthought » Wed Nov 15, 2017 4:25 pm

11/21/17: I've updated this post to reflect excellent feedback from the folks who responded to the original.

So a financial advisor I no longer do business with sent me this article about The Passive Investing Trap. The author seems to be arguing against ETFs in general, and ETF index funds in particular, but I don't see where he's going with it (he's not advocating any alternative that I can see). It turns out the financial advisor was hoping the article would make me distrust the whole idea of investing, and buy a whole life insurance policy from him instead.

The arguments seem to boil down to:
  • Volatility kills overall returns, and downturns can cause negative real returns even with a 20-year horizon if you get in at the wrong time. This is actually true, but the best response is to hold non-equity assets that you can use to buy into equities when they're down, not to get out of them entirely (see additional information below).
  • Buy and hold is a terrible idea in practice, because people panic during downturns and don't actually hold. Alfaspider observes: "Seems rather strange to attack an investment strategy on the basis that people don't follow the strategy?"
  • Investors get killed during downturns because they get cocky and leverage their investments during bull markets. Which has nothing to do with passive/active or indexing, and everything to do with the stupidity of going into debt in order to make risky investments.
  • Index funds see massive price crashes during market downturns, due to a combination of panic sales and forced liquidity events like margin calls and securities backed loan failures. Oldcomputerguy observes: "No more so than do the underlying investments. In fact, in the case of index mutual funds, the NAV corresponds directly to the price of the underlying holdings, so if the NAV of a mutual fund crashes, it's precisely because the prices of the underlying securities have crashed. This has nothing whatsoever to do with whether the mutual fund is or is not passively managed."
  • The goal of a sound investment strategy is not to beat (or even necessarily match) the market on the way up, but rather to protect capital from market downturns. Again, Oldcomputerguy: "Nope. That is the goal of risk-appropriate asset allocation. Which again has nothing to do with whether or not the holdings in question are actively or passively managed."
Each of these points seem reasonable enough, taken in isolation, but I'm not seeing why they support what seems to be a thinly veiled attack on Boglehead style investing? Most of the points argue that you shouldn't make stupid investing choices (high leverage, panic sales, etc.). The last point basically shows why a good portfolio should hold a lot of bonds.

The first point is the most confusing to me. It comes with an article of its own, which contains this chart:
Image

The argument seems to be that, if you look at actual market index point values, adjusted for inflation, a bear run usually wipes out most or even all of the gains from the bull run it ended, leading to low or even negative real growth overall. I'm not quite sure what to make of this. It certainly looks bad, and while I'm very suspicious of what it shows I can't quite put my finger on what's wrong with the analysis.

Would love to see some of the local experts cut through the fog here...

Some additional information:

A different, more transparent article includes four charts comparing historic drawdown lengths for S&P 500: {with, without} reinvested dividends and {adjusted, not adjusted} for inflation. The chart for inflation-adjusted returns without reinvested dividends is just as grim as the article above; with reinvested dividends, the situation is better but still pretty ugly (top is nominal, bottom is inflation-adjusted):
Image

Note that this article is assuming investors have a suitable mix of equities and bonds, and is using the drawdown data to argue that it doesn't work to keep a large cash cushion as a buffer against market downturns:
The Cash Cushion approach is really caught between a rock and a hard place. Either the drawdown is so long that you can’t possibly have enough cash to make it through or the drawdown is short enough that the cash cushion likely wouldn’t have made a big difference.
The same author argues in a different article that, given such long drawdowns, the only reasonable way for a retiree to stay out of trouble over the long term is to decrease portfolio's equity allocation in the years leading up to retirement (hedging against sequence of return risk), but then to increase the equity allocation again as the retirement progresses, to catch as much upside as possible and lengthen the time to depletion.
Last edited by overthought on Tue Nov 21, 2017 10:45 am, edited 1 time in total.

User avatar
David Jay
Posts: 4090
Joined: Mon Mar 30, 2015 5:54 am
Location: Michigan

Re: The passive investing trap

Post by David Jay » Wed Nov 15, 2017 4:33 pm

To start with, that is the SP500 index (in points). It is not total return.

The SP500 typically has about a 2% dividend yield. So through the peaks and valleys, the holder of the SP500 makes 2% per year just in dividends, in addition to what the chart shows.
Prediction is very difficult, especially about the future - Niels Bohr | To get the "risk premium", you really do have to take the risk - nisiprius

User avatar
David Jay
Posts: 4090
Joined: Mon Mar 30, 2015 5:54 am
Location: Michigan

Re: The passive investing trap

Post by David Jay » Wed Nov 15, 2017 4:39 pm

Second answer: It is true that the market goes up and goes down. And passive index funds follow the market. But the underlying implication is that this is somehow exploitable through active management. It is false that these ups and downs can consistently and repeatably be exploited by market timing.

Here is the classic quote by John Bogle:
“The idea that a bell rings to signal when investors should get into or out of the stock market is simply not credible. After nearly 50 years in this business, I do not know of anybody who has done it successfully and consistently. I don't even know anybody who knows anybody who has done it successfully and consistently."
Last edited by David Jay on Wed Nov 15, 2017 5:39 pm, edited 1 time in total.
Prediction is very difficult, especially about the future - Niels Bohr | To get the "risk premium", you really do have to take the risk - nisiprius

User avatar
nisiprius
Advisory Board
Posts: 34353
Joined: Thu Jul 26, 2007 9:33 am
Location: The terrestrial, globular, planetary hunk of matter, flattened at the poles, is my abode.--O. Henry

Re: The passive investing trap

Post by nisiprius » Wed Nov 15, 2017 5:01 pm

You can find charts and numbers on the cumulative and annualized real return of the stock market, including dividends, in many places. If that chart is supposed to be showing that the losses of the bear markets have wiped out the gains from bull markets, it just ain't so. I can assure you that from my personal experience.

This chart is from the Credit Suisse Global Investment Returns Yearbook, 2016. If you search on that you can find it online at no cost. Pick any time period--any two years--and look at the blue line (equities). If the blue line is higher at the second year than it was at the first, then the stock money made money for investors, adjusted for inflation, between those two years.

You can find similar, consistent data from many difference sources; from Siegel's Stocks for the Long Run; from the Ibbotson SBBI Classic Yearbook series; and simply by plotting a Morningstar growth chart for VTSMX (Vanguard Total Stock Market Index Fund) or VFINX (Vanguard 500 Index Fund).

Image

It's not worth the effort of trying to figure out how one more person, attacking indexing, came up with one more misleading chart.

I believe it is true that people who are aggressively invested have trouble holding through bear markets. There are two conceivable ways to deal with it.

1) Pay close attention to your own risk tolerance, invest in a balanced portfolio of stocks and bonds, don't have too high an allocation to stocks, don't exceed your risk tolerance, and choose one that you can hold through a bear market.

2) Believe that you are special. Believe that stock market risk exists for everybody else, but it does not exist for you, because you (or your advisor) has the shrewd insight, or a magic backtested market timing formula, that will let you get the reward of staying fully invested in stocks during the good times, with no risk because you'll go to cash during the bad times. (Or, continuously and gradually modulating your allocation with "tactical asset allocation.")

Of course if you can really do #2 you will fare much better than someone following #1, just as if you can really invest only in the good stocks you will do much better than someone who invests in the total market.

Basically, the premise of the article (and many other articles) is that passive investing has potential problems (as it does, particularly if you are too aggressively invested for your risk tolerance); ergo something else must be better. For example: passive investors sometimes fail to hold during a bear market, but active investors don't do this. It presents no data supporting either of these premises.

In 2013, Vanguard published a study, Most Vanguard IRA® investors shot par by staying the course: 2008–2012 based on
the personal performance of 58,168 self-directed Vanguard IRA® investors over the
ve years ended December 31, 2012
They found that
For the most part, investors fared reasonably well by choosing low- cost investments and staying the course, even in the midst of a turbulent investment period. However, a subset of accounts did not fare as well: those who “changed course” and exchanged money between funds.
Last edited by nisiprius on Wed Nov 15, 2017 5:06 pm, edited 2 times in total.
Annual income twenty pounds, annual expenditure nineteen nineteen and six, result happiness; Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.

overthought
Posts: 161
Joined: Tue Oct 17, 2017 3:44 am

Re: The passive investing trap

Post by overthought » Wed Nov 15, 2017 5:04 pm

David Jay wrote:
Wed Nov 15, 2017 4:33 pm
To start with, that is the SP500 index (in points). It is not total return.

The SP500 typically has about a 2% dividend yield. So through the peaks and valleys, the holder of the SP500 makes 2% per year just in dividends, in addition to what the chart shows.
Oh, duh... I knew that. I've gotten so used to TD Ameritrade's charts that consistently assume reinvested dividends that I'd forgotten how pervasive this fallacy is elsewhere.

JBTX
Posts: 1709
Joined: Wed Jul 26, 2017 12:46 pm

Re: The passive investing trap

Post by JBTX » Wed Nov 15, 2017 9:49 pm

overthought wrote:
Wed Nov 15, 2017 4:25 pm
So a financial advisor I no longer do business with sent me this article about The Passive Investing Trap. The author seems to be arguing against ETFs in general, and ETF index funds in particular, but I don't see where he's going with it (he's not advocating any alternative that I can see).

The arguments seem to boil down to:
  • Volatility kills overall returns, and downturns can cause negative real returns even with a 20-year horizon if you get in at the wrong time.
Well sure, if you buy at market highs and sell at market low, you could get a negative real return. Not likely over 20 years, but theoretically possible. It has happened. It becomes even less likely if you have diversified portfolio of stocks and bonds and continue to invest and rebalance over the 20 year period.
[*]Buy and hold is a terrible idea in practice, because people panic during downturns and don't actually hold.
Buy and hold isn't the problem, it is the fact that many people DON'T buy and hold. The fact that people don't do it doesn't make it a terrible idea. There are plenty of people who actually DO buy and hold over the long term. I have done it for 30 years and many people in this forum have.
[*]Investors get killed during downturns because they get cocky and leverage their investments during bull markets.
Sure, that happens sometimes. Simple, don't borrow to invest. I've never leveraged an investment (other than home..which isn't really an investment) and I suspect most people here haven't leveraged either.
[*]Index funds see massive price crashes during market downturns, due to a combination of panic sales and forced liquidity events like margin calls and securities backed loan failures.
Index funds go down correspondingly with the entire market. All those factors listed will cause the market to fall. There's nothing special about index funds in that regards. Chances are if you have 25 hand picked individual stocks they would go down too.
[*]The goal of a sound investment strategy is not to beat (or even necessarily match) the market on the way up, but rather to protect capital from market downturns
[/list]
There is certainly truth to this, but probably not in the way the author implies. You reduce risk by diversification and asset allocation to your appropriate risk level.
Each of these points seem reasonable enough, taken in isolation, but I'm not seeing why they support what seems to be a thinly veiled attack on Boglehead style investing? Most of the points argue that you shouldn't make stupid investing choices (high leverage, panic sales, etc.). The last point basically shows why a good portfolio should hold a lot of bonds.

The first point is the most confusing to me. It comes with an article of its own, which contains this chart:
Image

The argument seems to be that, if you look at actual market index point values, adjusted for inflation, a bear run usually wipes out most or even all of the gains from the bull run it ended, leading to low or even negative real growth overall. I'm not quite sure what to make of this. It certainly looks bad, and while I'm very suspicious of what it shows I can't quite put my finger on what's wrong with the analysis.

Would love to see some of the local experts cut through the fog here...
It is the typical broker argument that Joe commission charging Broker sitting down at the corner Edward Jones has superior knowledge of the market and can you when to get in and get it, and what to buy when that will reduce risk. Problem is there is no evidence to support that claim, and plenty of evidence to suggest that it isn't true.

avalpert
Posts: 6313
Joined: Sat Mar 22, 2008 4:58 pm

Re: The passive investing trap

Post by avalpert » Wed Nov 15, 2017 10:05 pm

He's not wrong, investors in index mutual funds and etf are not immune to chasing performance and panic selling. He's also not wrong that avoiding market downturns will improve your results.

But the implicit claim that advisors and active managers are immune from performance chasing and panic selling and are able to avoid downturns and increase your returns via market timing is unfounded - in fact, all evidence suggests they are just as likely to succumb as the amateur passive investor.

User avatar
bottlecap
Posts: 5064
Joined: Tue Mar 06, 2007 11:21 pm
Location: Tennessee

Re: The passive investing trap

Post by bottlecap » Wed Nov 15, 2017 10:08 pm

It is an old trope that investment advisors can sell before the downturn. They can't tell when the next downturn will be any better than the rest of us.

JT

venkman
Posts: 330
Joined: Tue Mar 14, 2017 10:33 pm

Re: The passive investing trap

Post by venkman » Wed Nov 15, 2017 11:24 pm

The main point of that article seems to be, "Investors tend to engage in irrational and/or risky behavior. Therefore, index funds are bad."
However, the real goal of any investment advisor is not to “beat the index” on the way up, but rather to protect capital on the “way down.”
This kinda seems like he's advocating a 100% allocation to bonds.

User avatar
telemark
Posts: 2092
Joined: Sat Aug 11, 2012 6:35 am

Re: The passive investing trap

Post by telemark » Thu Nov 16, 2017 12:29 am

Currently, with complacency and optimism near record levels, no one sees a severe market retracement as a possibility.
He must be reading a different financial press than I do.

User avatar
TomP10
Posts: 133
Joined: Tue Mar 18, 2014 4:13 am

Re: The passive investing trap

Post by TomP10 » Thu Nov 16, 2017 9:03 am

Two comments. There is no evidence that active managers fare better in downturns than passive investors. It is a big selling point, but it is a falsehood. It can only be true if the manager times both getting out of the market and getting back into the market. Hard to do.

Second, if the critique is that investors suffer from behavioral problems, then I have little disagreement with the author. Suppose for a moment that using an advisor would reduce the behavioral problems. Why would a person hire an advisor who uses active funds rather than one who uses a passive approach?

That article reads like a marketing piece to me.
"It is remarkable how much long term advantage people like us have gotten by trying to be consistently not stupid, instead of trying to be very intelligent." -- Charlie Munger

User avatar
nisiprius
Advisory Board
Posts: 34353
Joined: Thu Jul 26, 2007 9:33 am
Location: The terrestrial, globular, planetary hunk of matter, flattened at the poles, is my abode.--O. Henry

Re: The passive investing trap

Post by nisiprius » Thu Nov 16, 2017 9:11 am

venkman wrote:
Wed Nov 15, 2017 11:24 pm
...The main point of that article seems to be, "Investors tend to engage in irrational and/or risky behavior. Therefore, index funds are bad."
Yes, EXACTLY.

Now, it is possible that index funds somehow encourage certain behavioral errors. I don't believe it, but it's possible. After all, I actually do believe that ETFs encourage speculative behavior. (Go to Morningstar. Call up a chart for a mutual fund, say VTSMX. The default is a ten-year chart. Try the same thing on for the ETF version of the same fund, VTI. The default is a one-month chart.) The relationship between investing vehicle and behavioral error is a subject that could be explored and is worth exploring. The article, however, doesn't explore it.

I would call attention to a standard deceptive sales technique which I've encountered too many times. Let's call it "the competition won't do X." All that the salesperson says is that the competition won't do it. It is very easy to think you've heard the salesperson say that he will do it. He hasn't said that at all. The application here is, "your index fund won't protect you by getting you out before a bear market."
Last edited by nisiprius on Thu Nov 16, 2017 9:31 am, edited 1 time in total.
Annual income twenty pounds, annual expenditure nineteen nineteen and six, result happiness; Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.

User avatar
oldcomputerguy
Posts: 2099
Joined: Sun Nov 22, 2015 6:50 am
Location: In the middle of five acres of woods

Re: The passive investing trap

Post by oldcomputerguy » Thu Nov 16, 2017 9:31 am

overthought wrote:
Wed Nov 15, 2017 4:25 pm
So a financial advisor I no longer do business with (Good for you) sent me this article about The Passive Investing Trap. The author seems to be arguing against ETFs in general, and ETF index funds in particular, but I don't see where he's going with it (he's not advocating any alternative that I can see).

The arguments seem to boil down to:
  • Volatility kills overall returns, and downturns can cause negative real returns even with a 20-year horizon if you get in at the wrong time.
And this is specific to passive investing, how?
  • Buy and hold is a terrible idea in practice, because people panic during downturns and don't actually hold.
Buy-and-hold is a great idea in practice. Panic selling is by definition not practicing buy-and-hold.
  • Investors get killed during downturns because they get cocky and leverage their investments during bull markets.
Some undoubtedly do. But I fail to see how this particular syndrome relates to passive investing. I'm a passive investor, and absolutely none of my investments has ever been leveraged.
  • Index funds see massive price crashes during market downturns, due to a combination of panic sales and forced liquidity events like margin calls and securities backed loan failures.
No more so than do the underlying investments. In fact, in the case of index mutual funds, the NAV corresponds directly to the price of the underlying holdings, so if the NAV of a mutual fund crashes, it's precisely because the prices of the underlying securities have crashed. This has nothing whatsoever to do with whether the mutual fund is or is not passively managed.
  • The goal of a sound investment strategy is not to beat (or even necessarily match) the market on the way up, but rather to protect capital from market downturns
Nope. That is the goal of risk-appropriate asset allocation. Which again has nothing to do with whether or not the holdings in question are actively or passively managed.
Anybody know why there's a 20-pound frozen turkey up in the light grid?

alfaspider
Posts: 975
Joined: Wed Sep 09, 2015 4:44 pm

Re: The passive investing trap

Post by alfaspider » Thu Nov 16, 2017 9:36 am

Seems rather strange to attack an investment strategy on the basis that people don't follow the strategy :confused

harvestbook
Posts: 334
Joined: Sat Mar 18, 2017 7:12 pm

Re: The passive investing trap

Post by harvestbook » Thu Nov 16, 2017 9:37 am

I've noticed a lot of financial writers/bloggers conflate ETFs with passive indexing with low-cost investing. I suppose ETFs make it more tempting to trade around but I don't consider ETFs "passive." I consider "passive" an investing style, not a trading vehicle.

For many of us, it's about cost. If an astute active manager worked for 0.1 ER I would probably try one with a small portion of my portfolio even if they traded a lot. There's also this widespread belief that we're all "dumb money" just waiting for the next correction when we all panic and sell to those geniuses active managers. I suspect since the crash many of us are now smarter than the smart money, judging by the inflows to cheap index funds.
I'm not smart enough to know, and I can't afford to guess.

User avatar
EyeYield
Posts: 569
Joined: Tue Sep 18, 2012 6:43 pm
Location: Extremistan

Re: The passive investing trap

Post by EyeYield » Thu Nov 16, 2017 10:04 am

overthought wrote:
Wed Nov 15, 2017 4:25 pm
So a financial advisor I no longer do business with sent me this article about The Passive Investing Trap.
That was nice of them to keep in contact with an ex client. Did he/she mention why? Were they trying to educate you as to what a mistake you made by leaving them and going passive?

Well don't be rude, send them a link to this thread for it is they who need the education. Please post any response they give you or maybe they will join and make an argument.
"The stock market is a giant distraction from the business of investing." - Jack Bogle

Atgard
Posts: 263
Joined: Wed Apr 09, 2014 2:02 pm

Re: The passive investing trap

Post by Atgard » Thu Nov 16, 2017 10:48 am

First of all, the chart is misleading because it doesn't show total price (nor does it include dividends), it just shows total amount going up (in blue), then jumps back to zero and shows the total drop in red. It doesn't count the gains you just had. It's just saying "the market went up 352.15, then went down 352.22," which should put it back at zero, but this chart misleadingly shows it as negative. Your total return would NOT be negative, it would be right around zero. (Actually, it would be up by inflation + dividends, since this is inflation-adjusted.)

Looking later in the chart, you'd gain 583.32, then lose 453.32... and end up ahead. The line would never get down to zero. Then gain 1,804.81 and lose 972... and end up way ahead. You can see why on a normal chart, the line would actually be trending up over time, even with some dips, but it would not go below zero (except at the beginning of this chart). Even by removing dividend growth and subtracting out inflation, the chart STILL shows stock index funds making money, but in a misleading way that kinda shows like you go up and down around the zero line. That's not accurate.

User avatar
Alexa9
Posts: 463
Joined: Tue Aug 30, 2016 9:41 am

Re: The passive investing trap

Post by Alexa9 » Thu Nov 16, 2017 10:57 am

He makes a good argument for all in one index funds (Lifestrategy/Target Date) to try to eliminate market timing (bull riding/running from bears).

User avatar
alpine_boglehead
Posts: 87
Joined: Fri Feb 17, 2017 9:51 am
Location: Austria

Re: The passive investing trap

Post by alpine_boglehead » Thu Nov 16, 2017 12:25 pm

harvestbook wrote:
Thu Nov 16, 2017 9:37 am
For many of us, it's about cost. If an astute active manager worked for 0.1 ER I would probably try one with a small portion of my portfolio even if they traded a lot.
Even if your Very-Cheap-Active-Fund would actually have a ER that low, it would still be at a disadvantage due to frequent capital gains distributions (which is a side-effect of trading a lot) and have a drag on returns due to transaction costs (bid-ask spread, brokerage costs, costs of moving the market if it's a bigger fund), also a side-effect of trading a lot. So cheap and trades a lot are kind of mutually exclusive.

Hard to say how much exactly, but my guess is the V-C-A-F would still have to beat the market by at least 1% to offset these hidden costs.

MotoTrojan
Posts: 866
Joined: Wed Feb 01, 2017 8:39 pm

Re: The passive investing trap

Post by MotoTrojan » Thu Nov 16, 2017 1:30 pm

alpine_boglehead wrote:
Thu Nov 16, 2017 12:25 pm
harvestbook wrote:
Thu Nov 16, 2017 9:37 am
For many of us, it's about cost. If an astute active manager worked for 0.1 ER I would probably try one with a small portion of my portfolio even if they traded a lot.
Even if your Very-Cheap-Active-Fund would actually have a ER that low, it would still be at a disadvantage due to frequent capital gains distributions (which is a side-effect of trading a lot) and have a drag on returns due to transaction costs (bid-ask spread, brokerage costs, costs of moving the market if it's a bigger fund), also a side-effect of trading a lot. So cheap and trades a lot are kind of mutually exclusive.

Hard to say how much exactly, but my guess is the V-C-A-F would still have to beat the market by at least 1% to offset these hidden costs.
Vanguards "W_______" active funds are cheaper than many less common indexes. As alluded to, best held in tax-advantaged account.

overthought
Posts: 161
Joined: Tue Oct 17, 2017 3:44 am

Re: The passive investing trap

Post by overthought » Mon Nov 20, 2017 7:22 am

EyeYield wrote:
Thu Nov 16, 2017 10:04 am
overthought wrote:
Wed Nov 15, 2017 4:25 pm
So a financial advisor I no longer do business with sent me this article about The Passive Investing Trap.
That was nice of them to keep in contact with an ex client. Did he/she mention why? Were they trying to educate you as to what a mistake you made by leaving them and going passive?

Well don't be rude, send them a link to this thread for it is they who need the education. Please post any response they give you or maybe they will join and make an argument.
Heh... I still have no idea what the author of the article was pushing for, but it turns out the advisor was trying to sow discontent with the market in general in hopes that I'd spring for... wait for it... a whole life insurance policy with guaranteed stable tax-free growth and amazing dividends.

I don't think that conversation needs to continue, and judging from past whole life threads I don't think inviting them to comment here would produce a constructive outcome for anyone.
oldcomputerguy wrote:
Thu Nov 16, 2017 9:31 am
overthought wrote:
Wed Nov 15, 2017 4:25 pm
  • The goal of a sound investment strategy is not to beat (or even necessarily match) the market on the way up, but rather to protect capital from market downturns
Nope. That is the goal of risk-appropriate asset allocation. Which again has nothing to do with whether or not the holdings in question are actively or passively managed.
Yeah, I agree. It's almost like the author's target audience holds 100% equity and has no bonds or other stable assets that would let them buy in at market lows (c.f. the article's comment about you have to have sold high in order to have money for buying low).

overthought
Posts: 161
Joined: Tue Oct 17, 2017 3:44 am

Re: The passive investing trap

Post by overthought » Tue Nov 21, 2017 10:46 am

Thanks to all for excellent feedback. I've updated the original post to incorporate some of the points I found most helpful.

MI_bogle
Posts: 275
Joined: Mon Aug 01, 2016 3:56 pm

Re: The passive investing trap

Post by MI_bogle » Tue Nov 21, 2017 11:30 am

overthought wrote:
Wed Nov 15, 2017 4:25 pm

So a financial advisor I no longer do business with sent me this article about The Passive Investing Trap. The author seems to be arguing against ETFs in general, and ETF index funds in particular, but I don't see where he's going with it (he's not advocating any alternative that I can see). It turns out the financial advisor was hoping the article would make me distrust the whole idea of investing, and buy a whole life insurance policy from him instead.
Color me surprised! FUD makes those guys a lot of money

overthought
Posts: 161
Joined: Tue Oct 17, 2017 3:44 am

Re: The passive investing trap

Post by overthought » Tue Nov 21, 2017 11:50 am

MI_bogle wrote:
Tue Nov 21, 2017 11:30 am
overthought wrote:
Wed Nov 15, 2017 4:25 pm

So a financial advisor I no longer do business with sent me this article about The Passive Investing Trap. The author seems to be arguing against ETFs in general, and ETF index funds in particular, but I don't see where he's going with it (he's not advocating any alternative that I can see). It turns out the financial advisor was hoping the article would make me distrust the whole idea of investing, and buy a whole life insurance policy from him instead.
Color me surprised! FUD makes those guys a lot of money
Yeah... I guess (from the advisor's perspective) the next best thing to a big yearly asset management fee is a massive commission from selling a whole life policy? The sad thing is, the WL policy might actually show a comparably decent overall return vs. the high-fee mutual funds it would replace in the uninformed investor's portfolio... after 20 years when it finally recovers from the up-front commission hit. But that's not setting a very high bar.

Post Reply