Philadelphia Reflections

The musings of a physician who has served the community for over six decades

Related Topics

Passive Investing
Low-fee, low-turnover investing of diversified index funds is sweeping away old-fashioned investment management.

What's the True Cost of Active Investing ?

Why do stocks go up? Somebody buys them.

In recent years, huge numbers of people sold active investments, in order to buy index funds. Consequently, index funds went up, and active investments went down. That's no surprise.

A truer test of superiority will come when sales volumes are neutral.

We will then discover whether index funds started too low and rose disproportionately. Or whether active investors had over-bought. Or some degree of both things happened at once.

Obviously, active investing has a cost; it's price discovery that matters.

Originally published: Saturday, February 11, 2017; most-recently modified: Friday, June 07, 2019