The Active/Passive Debate: Others Weigh In
By Roger Nusbaum, AdvisorShares ETF Strategist
In a blog post on March 23rd of this year I said the following;
The true objective, even if they don’t realize it, is having enough money when they need it. As I typically say in this type of post; without looking what did the market do in the second quarter of 2013 and how did your portfolio do? You are very unlikely to know that answer, without looking, because it does not matter. If you are on track you know it and that is important and if you are not on track you know that as well and that is also important. However wrapped up anyone might be about the current quarter, two or three years from now you won’t remember this quarter either.
On April 6th in a post at Think Advisor, Marshall Jaffe made a similar argument but also included the following;
If you hold (as I do) that investing is just one of many human activities—then just like those other activities, we have no choice other than to be active participants. The decisions of where you will invest your money, and within that choice what kind of strategy you will employ, also require active decision making.
In the most recent AdvisorShares Alpha Call Josh Brown and Michael Batnick from Ritholtz Wealth Management discussed at length the importance finding the right strategy and then taking the time to understand the strengths and weaknesses of whatever you decide is the right strategy.
We could probably sum up the strengths and weaknesses of most valid strategies as being the best route for you to emotionally endure the full market cycle without doing something stupid (the Jaffe article gives a nod to Charlie Munger on this point) and the weakness will probably be that your valid strategy lags whatever is hot right now, last year it was the S&P 500 and so far this year it is Portugal (up 31% in Euro terms).
If your strategy includes selecting asset classes and rebalancing occasionally to maintain your idea of diversification then you arguably are actively investing even if you use passive funds (a point discussed in my above linked blog post). And if you have a diversified strategy and an adequate savings rate then your odds for having enough for your goal (presumably retirement) increase and as we have said before that is the most important thing regardless of whether you do it yourself, hire someone to do it for you or are the person hired to do it for clients.