Abnormal Returns (via The Capital Spectator) has an interesting article on why it may make little sense to take an active approach to your investments, a particularly timely piece given the recent stock market turbulence. John Bogle, considered the godfather of passive index investing, recently updated a chart comparing the performance of the average U.S. endowment fund against a very simple portfolio divided evenly between bonds and stocks, from 1997 to 2011 – and found very little difference between them.
The endowment funds, of course, are staffed by exceptional investors who have access to some of the most sophisticated investment tools. They can look beyond the usual run-of-the-mill investments and dabble in forests and private equities. They can move in and out of positions with lightning speed, too. The result: Since 1997, the average fund has an average annual return of 7.3 per cent.
Meanwhile, the portfolio split evenly between stocks and bonds – and rebalance every quarter – lagged by a hair’s breadth, returning an average of 7.1 per cent a year.
“This is yet another example why most investors would be well served by doing very little with their portfolio as opposed to too much,” Abnormal Returns said.
You can read the longer article from The Capital Spectator here.