In this episode of Enrich Your Future, Andrew and Larry Swedroe discuss Larry’s new book, Enrich Your Future: The Keys to Successful Investing. In this series, they discuss Chapter 41: A Tale of Two Strategies and Chapter 42: How to Identify an Advisor You Can Trust.
LEARNING: Passive investing is still the winner. If something is worth doing, it’s worth paying someone to do it for you.
“A good wealth advisor helps you build a plan and choose the best investment vehicles that’ll give you the best chance of achieving your life and financial goals.”
Larry Swedroe
In this episode of Enrich Your Future, Andrew and Larry Swedroe discuss Larry’s new book, Enrich Your Future: The Keys to Successful Investing. The book is a collection of stories that Larry has developed over 30 years as the head of financial and economic research at Buckingham Wealth Partners to help investors. You can learn more about Larry’s Worst Investment Ever story on Ep645: Beware of Idiosyncratic Risks.
Larry deeply understands the world of academic research and investing, especially risk. Today, Andrew and Larry discuss Chapter 41: A Tale of Two Strategies and Chapter 42: How to Identify an Advisor You Can Trust.
Chapter 41: A Tale of Two Strategies
In Chapter 41, Larry explains why investors who have implemented the types of passive strategies recommended in his book have experienced “the best of times.” On the other hand, for those who continue to play the game of active investing, it has generally been the “worst of times.”
“It was the best of times, it was the worst of times.” Charles Dickens may have been writing about the French Revolution, but Larry observes that that line rings true for today’s investors, too. Depending on how you approach the market, your experience can feel like either a triumph or a disaster.
If you’re betting on active management, it’s the worst of times
According to Larry, people who still believe in the promise of active fund managers as the winning strategy are likely to find themselves in the “season of Darkness.” Over the years, the ability of active managers to consistently outperform has dwindled significantly.
You may be surprised to learn that in 1998, when Charles Ellis wrote his famous book “Winning the Loser’s Game”, about 20% of actively managed funds produced statistically significant returns after adjusting for risk. That figure was already discouraging.
A later study in 2014 (Conviction in Equity Investing) found that the percentage of managers producing any net alpha had dropped from 20% in 1993 to just 1.6%.
Larry reminds investors who are holding on to the hope that active management will deliver the goods that they are swimming against a strong current. The odds aren’t in their favour—and neither are the expenses.
It’s the best of times for passive investors
If you’ve embraced passive investing, it’s the best of times. The resounding success of this strategy, backed by a wealth of data and real-world results, should instill a strong sense of confidence in your investment decisions.
For investors who believe that markets are efficient...
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