Why You Should Rethink Passive Investing

Home
  ›  
Investing
  ›  
Why You Should Rethink Passive Investing
You are here:

Why You Should Rethink Passive Investing

Passive indexing has long been popular among the smaller investors. But wealthy investors often pursue more active strategies, either with active managers or on their own. After all, they didn’t accumulate their wealth by sitting back and doing what everyone else does, right?

But the evidence against active management is strong, with the most managers failing to beat the index over time. So why do wealthy investors tend to shun a passive approach to managing their money?

JC Blog 032217

Industry thought leader Charley Ellis breaks the question down into is simplest form. Wealthy investors often owe their financial success to their hard efforts. Growing up, they were told to try hard in school and get good grades, and they’ll go to a top college. Early in their careers, they were told that working harder than the next guy will give them a leg up. And wealthy or not, if you’ve got your goals set, the more you try, the harder your effort, the greater your chances of success.

So how can sitting back and being “passive” be the best investment strategy? Like many things within the bizarre world of investing, conventional wisdom gets turned upside down.

Investors who make more moves to position their portfolios often maneuver themselves right out of success. For example, a 2000 study showed that investors who traded the most underperformed the index by over 6% annually. And those who succumb to their emotions often react to market swings at the worst times, as numerous studies have consistently shown. In all cases, their actions, their active behavior, has been shown to lower their performance.

Conversely, long term investors with a disciplined system for making any changes in their portfolios generate relatively better returns. By staying invested through market cycles and by sticking with a rules-based approach for making portfolio changes, they benefit from a “less is more” philosophy. They avoid the self-inflicted mistakes.

As Charley Ellis puts it, they succeed by winning the loser’s game.

James Callahan, CFA

James Callahan, CFA is Partner and Managing Director at Janiczek® Wealth Management.

Jim brings 20 years investment experience to Janiczek®’s disciplined Evidence Based Investing (EBI) and Strength Based Wealth Management™ (SBWM) platform. He has a Bachelor’s degree in Economics from Santa Clara University, an MBA from the University of Michigan, and is a CFA charterholder. He is a Partner of the firm and a member of its executive Leadership Team.

jcallahan@janiczek.com
(303) 339-4483

There are no comments yet, but you can be the first



Comments are closed.

*Ranked/Named among Top, Best and Most Exclusive Advisors sources: Barron's March 2016, 2015, 2014; Advisory HQ March 2016; Financial Times June 2015; Five Star Professional November 2015, 2013, 2012,2011, 2010, 2009; Mutual Funds Magazine January 2001; NABCAP September 2010, 2011, 2013; Worth Magazine July 2002, January 2004, October 2004, October 2008; Wealth & Finance International, October 2014. Rankings and/or recognition by unaffiliated rating services and/or publications should not be construed by a client or prospective client as a guarantee that he/she will experience a certain level of results if Janiczek & Company, Ltd. is engaged, or continues to be engaged, to provide investment advisory services, nor should it be construed as a current or past endorsement of Janiczek & Company, Ltd. by any of its clients. Rankings published by magazines, and others, generally base their selections exclusively on information prepared and/or submitted by the recognized adviser.

Please remember that past performance may not be indicative of future results. Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product (including the investments and/or investment strategies recommended or undertaken by Janiczek & Company, Ltd.), or any non-investment related content, made reference to directly or indirectly on this website will be profitable, equal any corresponding indicated historical performance level(s), be suitable for your portfolio or individual situation, or prove successful. Due to various factors, including changing market conditions and/or applicable laws, the content may no longer be reflective of current opinions or positions. Moreover, you should not assume that any discussion or information contained in this website serves as the receipt of, or as a substitute for, personalized investment advice from Janiczek & Company, Ltd. To the extent that a viewer has any questions regarding the applicability of any specific issue discussed above to his/her individual situation, he/she is encouraged to consult with the professional advisor of his/her choosing. Janiczek & Company, Ltd. is neither a law firm nor a certified public accounting firm and no portion of the website content should be construed as legal or accounting advice. If you are a Janiczek & Company, Ltd. client, please remember to contact Janiczek & Company, Ltd., in writing, if there are any changes in your personal/financial situation or investment objectives for the purpose of reviewing/evaluating/revising our previous recommendations and/or services. A copy of the Janiczek & Company, Ltd. current written disclosure statement discussing our advisory services and fees is available upon request.

TM & Copyright 2016, Janiczek & Company, Ltd. All rights reserved.