The passive investor revolution has been well-documented by now.
Ushered in by Vanguard’s legendary founder Jack Bogle, low-fee investing in indices and exchange traded funds (ETFs) has been booming, with Americans moving more than $US1 trillion from actively managed funds to passive funds in the past decade.
Stock pickers are actually having a pretty decent year in 2017 — which, for their standards, means a little more than half of them are beating their benchmark.
But research released earlier this year from Standard & Poor’s shows just how bad the bloodbath has been for active managers once you strip away survivorship bias — that is, accounting for funds that have merged or liquidated — and you look at multi-year time horizons.
One-year returns vary, but the performance is more consistent once you compare funds to the benchmarks over the course of 10 or 15 years. Less than 8% of all large-cap, mid-cap, and small-cap equity funds outperform over the course of 15 years.
When you look at all domestic funds — including the comparatively better-performing value funds and real estate funds — against the S&P 1500 index, the vast majority (82%) still underperform over the long haul.
It’s worth noting that these figures take fees into account. More funds may actually beat the indices in the raw performance, but once you account for the myriad fees they charge, the gains are wiped out.
That’s why financial planners and retirement experts exhort people to monitor their 401(k) plans and avoid active management: Fees are sneaky, and even a seemingly small percentage can potentially rob you of hundreds of thousands of dollars from your nest egg.
“This is probably the biggest thing that’s affecting people’s portfolios over a long period of time,” Michael Solari, a certified financial planner with Solari Financial Management, told Business Insider earlier this year.
“A lot of people don’t really understand what the impact of maybe a half a per cent is on their retirement,” Solari said. “It’s pretty shocking when you take a look at it over time.”