Comments on: Review: The Power of Passive Investing

By: AnnJo

AnnJo — Tue, 08 Feb 2011 20:00:28 +0000

Even with “passive” investments like index funds, you still have to decide how much to put in each of the various indexes, and most importantly, when to pull out cash and sit on the sidelines.

Otherwise, the long-term results are not very good. The Vanguard 500 index (tracking the S&P 500) has a 10 year average annual return (1.2%) well below the rate of inflation, and it spent most of the last 10 years in the negative numbers.

No one will care as much about your money as you do. Delegating the responsibility for it to the market herd is the opposite of low-risk investing. When the market herd decides to turn and run off the cliff – and it will again as it has before – you’ll go with it.

By: GayleRN

GayleRN — Mon, 07 Feb 2011 14:26:09 +0000

While I am forced to do this with my 403b money as that is the rules, the money that I can manage is returning far in excess of market rates. I find it interesting that index fund aficionadoes have a definite bias when they talk about market returns. They always assume that return will be positive ignoring the years of negative returns. I personally use it as a contrary indicator. When most of the people I work with are happy with their 403b returns I know it is time to get out. When they are most unhappy and have bailed out of their 403b entirely in favor of a vacation or new car I buy like crazy. Has worked very well for me.

It is very true that most people are not willing or able to put in the work and time to manage their own investments. It takes years and a risk tolerance that most people simply do not have.

By: thad

thad — Sun, 06 Feb 2011 22:57:51 +0000

I actually got to hear Rick Ferri give a presentation for this book a month or two ago – he’s an excellent speaker (it’s the 2nd time I’ve seen him). I also got my copy of this latest book of his signed by Rick Ferri after the presentation! Unfortunately, I’ve been too busy to read it all the way through yet.

As far as specific advice for which funds to use, Rick Ferri’s book “All About Asset Allocation” is a fantastic book on which (index) funds to use for the construction your portfolio.

Cheers,
Thad

By: Sean

Sean — Sun, 06 Feb 2011 21:38:26 +0000

Quick clarification on alpha–”lower” alpha is not necessarily bad. An alpha of zero means a risk/return right in line with the S&P. What you want to watch out for is negative alpha.

By: Jeff

Jeff — Sun, 06 Feb 2011 21:24:53 +0000

The Bogleheads forum at Bogleheads.org is an excellent resource to follow up on this and to get information on more specific ideas. It is a forum with a wiki full of resources and people dedicated to the idea of low cost passive investment, where active trading and market timing are shunned. Rick Ferri is a regular contributer there. I have found it is an excellent place to go for more details once you are committed to the passive investing philosophy.