Actively Bad



Thanks for taking a moment to read our musings on markets, investing and economics. We hope that you find them interesting and useful to help you navigate your journey toward realizing your financial goals. We anticipate that we'll be contributing to this space at least a couple of times a week, or as frequently as events necessitate. Markets have been doing a bit of gyroscoping lately, so we expect to write more during this period of extraordinary uncertainty so that you feel more comfortable in the knowledge that no one really knows what is going to happen, and very few really know what is going on.

First, a word about goodstead: we're an independent financial and investment advisor. We seek to help our clients meet their life goals through the achievement of specific financial goals. (This is the correct order of propriety.) We use technology to do this cost-effectively and at scale, and commit to providing you with the best investment portfolio for your individual degree of loss aversion and length of investment horizon. Our approach is passive, in that we believe that index investing is the most reliable way for our clients to achieve their financial goals. This is because investment managers, on the whole, do not succeed in outperforming the index average, even excluding the consideration of the fees that investors pay them.

Let's turn to recent data to exemplify the principle. The S&P Indices Versus Active scorecard for the first half of 2020 (SPIVA, a kind of report card for active managers as a whole) just released results showing that 63 per cent of the actively managed US mutual funds that invest in US Large Cap domestic equities failed to outperform their benchmark on a net-of-fee basis over the past year. This means that their clients are paying their investment manager to do worse than if they had invested those funds in an index-replicating fund. Over in fixed income markets, 92% of US long bond managers failed to outperform the index. That's shocking.

Overall, more and more investors are shifting from active managers to passive managers to invest their money, and you can see why. Much beyond not paying for underperformance (a key goodstead principle), investors are becoming wise to the idea that they can obtain better results for almost no fees at all. We started goodstead to accelerate and harness this trend. We hope that you will ask us to join you as your company for the road ahead.

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