The average active U.S. large-cap equity fund gained more than 25% in 2019, according to a new article by Jeffrey Ptak. Pretty damn okay, but also pretty damn lousy when compared to its benchmark, the S&P 500, which gained 31.5% over the same time.
I want to make a point that I believe is important and rarely spoken about; For most investors, the active /passive debate is a distraction from what really eats away at returns. These include not having an investing philosophy, getting too emotional, market timing, holding too much cash, and not investing enough, to name a few.
Of course these small differences between the average active fund and the index can make a large difference over time, but I think the whole topic gets too much attention relative to the ultimate difference it will make in most investors lives.
Don’t get me wrong, I still believe index funds make a lot of sense for most people, but let’s not lose sight of the big picture. How much you invest and where you allocate your investments will have a much larger impact upon your life than investing in a fund that might or might not beat its benchmark.
Michael Batnick is a managing partner at Ritholtz Wealth Management. He is the co-host of Animal Spirits, What Are Your Thoughts, and The Compound and Friends. For disclosure information please see here.
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