Some studies have suggested that passive investing generally outperforms the average active manager, net of fees. Many papers and studies making the case for passive investing, reveal that good active managers can and have delivered better returns. William Sharpe, in his oft quoted 1991 article "The Arithmetic of Active Management" which largely makes the case for passive investing, notes that: "It is perfectly possible for some active managers to beat their passive brethren, even after costs . . . . It is also possible for an investor (such as a pension fund) to choose a set of active managers that, collectively, provides a total return better than that of a passive alternative, even after costs".

InterSec Research published the paper "The Benefits of Active Management in Non-US Equities" which found that "By lengthening the period of performance evaluation from rolling one-year to rolling five- and 10-year periods, it becomes evident that the median active EAFE Plus manager has consistently added value over the benchmark."

An additional analysis of US Large-Cap Core managers measured the frequency of outperformance of the median manager using rolling time periods over 10 years.  The results show that the median manager outperformed 100% of the time in the three-, five- and seven-year time periods.

Two conclusions can be drawn here:

  1. Active management accrues benefits as the time horizon is extended and through market cycles.
  2. Shorter-term periods can be heavily influenced by other factors such as market conditions,
    making it difficult to evaluate an active manager's skill.

Therefore, for investors who intend to allocate to a specific asset class for a relatively short
period of time, a passive approach may be prudent. However, it's clear that longer periods of
time favor an active approach.

Finally, here are 3 good reasons to carefully consider Active Professional Money Management:

Reason #1: Discipline…

Remaining objective in an emotionally charged market environment is nearly impossible for most investors.  Consequently, they make the wrong investment decisions at the wrong time.

Reason #2: Contingency Planning…

You may enjoy investing - and even have a great track record doing so - but have you thought about who will care for your investments in the event you become unable to do so? 

Reason #3: Peace of Mind…

Market Volatility, scary headlines and memories of recent bear markets do not make for restful sleep.  Knowing that your savings are being guided through bull and bear market cycles by a skilful manager with a proven record of having successfully done so should give you the confidence to enjoy the things that really matter in your life like your family and your health. 

The bottom line is that we want you to be successful, so contact us today about your investment needs.

Retirement Maximizer, Inc. is a registered investment adviser in the States of Florida and Texas, The adviser may not transact business in states where it is not appropriately registered, excluded or exempted from registration. Individualized responses to persons that involve either the effecting of transaction in securities, or the rendering of personalized investment advice for compensation, will not be made without registration or exemption.

Disclaimer: Nothing in this posting should be considered personalized investment advice. These comments are of a general nature and may not apply to your particular situation.