There are two roads a person can follow when managing an investment portfolio; active management and passive management. Active management embraces the idea that a person can achieve superior returns over market indexes. In contrast, passive management is all about achieving, as close as possible, the returns of the financial markets. Passive investors understand that market returns are good returns.
The human desire to beat the market is a powerful force. Investors will spend a considerable amount of time and money searching for superior returns. That search is promoted by a multi-billion dollar Wall Street marketing campaign that employs an army of talented salespeople.
Despite all the time and money spent trying to identify ways to beat the markets, the net result falls far below expectations. Very few mutual funds and investment advisors are able to achieve superior performance with enough consistency to make it worth the effort. After paying mutual fund fees, advisor fees, broker commissions and other related investment costs, an investor’s return typically falls below the market.
Spending time and money trying to beat the market with active management is counterproductive. At Portfolio Solutions®, we specialize in low-cost passive investing. It is economical, efficient and practical.