The Passive vs. Active Investing Debate Is Dead: Index and Chill Episode 2

If the higher costs of active management do in fact lead to underperformance, we should see this in active investors’ track record as a group. Today, we’ll examine the evidence to see if active management has actually been performing as poorly as theory would suggest.

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[JustinBenderCPM]

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[Helix]

Going back through your archives! Great video Justin 👍

[JesusRodriguez-kukg]

Awesome! a Canadian Bogle-Head Channel, just what I have been looking for the last 6 months since I immigrate. I knew I wouldn't find these among the top viewing channels.

[samvan]

Good info and insight. I can share my first hand recent experience when I transferred all myself direct portfolios to Fisher Investment December 2021 and what a mistake that was. Anyone considering paying wealth management firms should think twice - about the assurance (or lack thereof) of active manager being able to beat passive index ETF and not to mention the exuberant fee these firms charge for lack of performance.

[daviddalton]

Great video, Justin. I have believed in the efficient market hypothesis for almost 40 years. I would describe myself as an unrepentant indexer. Here is a question that has been on my mind for some time. I have read articles about an index bubble or tipping point and have come to the conclusion that there will always be a kind of equilibrium between active and passive investing. There will always be enough active investors to ensure price discovery. But what if there were no active investors left? Would it not be possible that the market would remain relatively efficient? I am reminded of Francis Galton's observation that the average of the guesses of the weight of an ox at a fair turned out to be within a few pounds of the actual weight. Or, think of guessing how many jellybeans in a jar. I think that most of the participants at the fair were not well-informed livestock experts. Maybe it's a silly question, but I just have this feeling that the trading even of unsophisticated investors would result in prices not far from the intrinsic value of the stocks.

[dwarfda]

So, did the video about why not just invest in the winning funds ever come out? I couldn't find it on the channel.

[scottshafer]

Fantastic! I always feel better about VGRO and chill after watching your videos. Thank you for the excellent content.

[learnwithkris]

As I understand it, XUU is a fund-of-funds, but are they starting to hold the underlying assets directly? I ask this because it seems that the top 10 holdings is displaying stocks as well as the ETFs it holds. A few months back, the top 10 holdings only showed the underlying ETFs.

[sadiemoland]

Great vid. I have a question though. I’m really really new to investing and I made the decision to make monthly contributions into a Questrade QuestWealth portfolio of etfs for my TFSA - I went with this option because it requires very little effort on my part thanks to the automatic deposits, rebalancing, drip etc which made sense for me as someone just getting started. I considered going with Wealthsimple which offers pretty much the same robo-advisor option but the MERs are higher. My question is this - Questrade says that their Questwealth etf portfolios are “actively managed” whereas Wealthsimple says their etf portfolios are “passively managed” but Wealthsimple’s MERs are higher….what does this mean? How is this possible? I figure my best bet is to go with whatever option has the lowest fees but will active management negate this by underperforming the passive option in the long term?

[adbp]

Thanks Justin. Now you know why we left RBC...it was way too difficult to understand what was going on with our cash moving between mutual funds and individual stocks. The reports were like mini phone directories, full of charts and tables, but slim on the fees details. I guess folks get drawn into the thrill of 'beating the market'.

[Andrew]

Hi Justin.
What are your thoughts on XBAL as the only fund in a retirement portfolio ? Thanks for a great content.

[awsalmufleh]

Thanks Justin. Great video and evidence-base. How do you respond to the argument that mutual funds lose because of the fees, but independent investors who employ 5-factor model investing and avoid frequent transactions and high fees, can still beat the passive benchmark?

[Crusader]

What's your view on tilting your passive index portfolio towards factors?

[bettyangwenyi]

But...the indices have been bearing down for 6 months now. How is that good?

[markhermann]

It is clear that low cost funds beat hire cost funds. But what about retail investors who pick their own stocks, and manage to keep their funds low? Eg. WS Trade has comission free Canadian trades, and NBDB likewise has commission free trades. How would such retail investors perform on average vs. a passive fund?

[HamiltonRb]

Very interesting. Have you ever done a show on what you would consider a great retirement portfolio, and how you would withdraw 4% ( dividends or sell off shares), and what part bonds or covered call etf's would play, if any in that portfolio? Thanks

[ybc]

stock is in free fall, what can we do now?

[mrslcom]

I assume then the few actively managed funds that beat the market did so by a huge margin?
Is there a strong reason why most active funds underperform?

[vicfontaine]

Hi Justin, love your channel and the work you and Ben are doing. I have a question about the recent popularity of the income funds that implement covered calls and even leverage for the high yields. Would you advise to stay away from them