You may be paying your money manager to under-perform the market — Now learn how to fix it.

We’ve all been taught to ‘Buy and Hold’ — So we explored who benefits from it the most. Now, we’ll make the case for why you may be paying your money manager to under-perform the market.

The mutual fund industry is the world’s largest skimming operation, a $7 trillion trough from which fund managers, and brokers are steadily siphoning off an excessive slice of our nation’s household, college and retirement savings.

It’s no secret that ‘Buy and Hold’ investing is the most popular strategy among investors. It has been around for ages, and some of the world’s wealthiest investors have made their fortunes by following this method. But what many people don’t realize is that it may not be the best choice for everyone – in fact, research suggests that in many cases, it could lead to underperformance.

The buy-hold figures are equally unfavorable when viewed over even longer-term investment horizons.

To understand why this might be true, one needs to look no further than the SPIVA® U.S. Scorecard data from S&P Dow Jones Indices LLC. SPIVA® tracks a range of equity, fixed income, and hybrid mutual funds across different categories to compare fund performance with its relevant benchmark index over periods from one to ten years. The results are not encouraging—over the past 10 years ending December 2018, SPIVA® US Scorecard data shows that 62% of large-cap mutual funds underperformed their relevant benchmark index over the same time period! That’s an appalling record: more than half of all actively managed large-cap U.S.-focused mutual funds failed to beat their benchmarks over a decade — despite charging higher fees and promising superior performance.

So why should you care? Well, if you’re paying your money manager to manage your investments, it could mean that they are skimming profits off your returns without providing any additional value… While ‘Buy and Hold’ has been touted as the best way to invest over time – particularly if you have a long-term horizon – SPIVA® data clearly shows that active management often fails to outperform passive indices even after adjusting for fees. This means that not only may you be paying somebody extra fees for underperforming investments but also missing out on potential returns by foregoing market-tracking index funds.

key takeaways.

‘Buy and Hold’ investing has its merits but SPIVA® Scorecard data reinforces the fact that there can be significant drawbacks for those who choose an active management approach – especially when it comes to large-cap U.S.-focused mutual funds. By understanding how SPIVA® measures fund performance relative to benchmark indices over different time periods, investors can make more informed decisions about how they allocate their capital and determine if they’re really getting what they pay for when hiring a money manager.

So how do you fix it? Consider the hidden power of Indexing. Meet with us, here.

Our Concierge Client Team is here to help you reach your financial goals — Learn more about our unique approach, here.

smart sheets.

October // 2023

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November // 2023

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