A Way Forward
So this is a call for action. If you have been using active strategies and have failed to outperform appropriate risk-adjusted benchmarks, or the fund managers you have hired have failed to do so, or if your advisor using active strategies has failed to do so, ask yourself:
- What will I be doing differently in the future to ensure a different outcome? If I cannot identify anything, then why do I think the outcome will be different?
- Why do I think I will succeed where others (institutional investors) with far greater resources and other advantages (such as lower costs and/or no taxes to pay) have failed with such great persistence? What advantages do I have that will allow me to succeed?
Finally, it’s my experience that the vast majority of investors don’t even know what their returns have been relative to appropriate benchmarks. One reason is that Wall Street doesn’t want you to know—if you did, you might stop making it rich. Another might be that the truth would be too painful, so investors themselves don’t want to know. But you should know. Without such information, there is no way to know if your strategy is working.
If you don’t know, my suggestion is to take your portfolio to a fiduciary advisor, one that uses passive strategies, and ask them to analyze your portfolio and show you how it has performed relative to appropriate benchmarks. It might just turn out to be the best “investment” you have ever made.
Larry Swedroe is the director of research for the BAM Network of financial advisors and a well-known advocate of index-based investment strategies. The foregoing is an adapted version of his remarks to registered investment advisors in a conference call.
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