Carnival of Passive Investing # 15 – What Passive Investing Is and Is Not – February 2012 Edition

In this article, Nick takes a look at several things. First, he analyzes how much extra time it takes to do the research necessary to attempt to outperform the market and points out how for most smaller investors, the added return this will give (if any) is often not worth the time commitment. Second, he discusses the dangers of following the advice of market pundits in the financial media on the direction of the markets in the future. 

Echo presents a direct comparison of the performance of active vs. passively managed mutual funds from the same asset classes over the past year years. The results strikingly show that the passively managed index funds not only have lower fees, but also significantly outperform the actively managed funds when considering the growth of a $10,000 initial investment.

Interesting article here about international bonds/bond funds! Right now, my fixed income investment asset allocation only includes US securities. However, I’ve often wondered if there are any additional diversification benefits of expanding this to foreign fixed income securities as well. Any one have any thoughts on this? 

While this post isn’t about a specific passive investing strategy, I really liked the graph that shows the levels at which Larry Fink predicted that the stock market was set to take off. One of these times was March 13th, 2008, and we all know where the markets headed shortly after that date. If the CEO of Blackrock apparently has trouble predicting the direction of the market, it seems like it would be even harder/impossible to do so for average investors like me. This is why I choose to stick with a passive investing strategy instead of trying to time the market.

Passive investing is not – Assessing where the market will go in the future, even if it involves predicting the direction of an entire index, such as the S&P500. 

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Passive investing is not – Analyzing the activities involved in renting out a real estate property you own. However, assessing how a passively managed real estate REIT or index mutual fund might or might not fit in to your asset allocation would fall in to the category of passive investing.  

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Passive investing is – Investing with the market through the use of proper asset allocation, index investing, ETFs, portfolio rebalancing due to market fluctuations, asset class evaluation, controlling investor emotions, etc.

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