Passive Funds in U.S. Stock Market Have Nearly Equaled Active Funds
Passive Funds in U.S. Stock Market Have Nearly Equaled Active Funds
What kind of an investor are you: passive or active? Chances are if you’ve been following the recent trend you find yourself on the passive side. But what does that mean exactly? It’s not so much the way in which you invest, but more about what kinds of stocks you invest in.
Passive vs. Active
So what is passive investing, and for that matter active investing? Passive investing is a strategy that tracks market-weighted portfolios or indexes. The most common type of passive investing is to buy an index fund. Typically these funds offer low turnover, good variety, and minimal management fees. That means higher returns compared to a similar investment with higher costs and fees.
On the other hand, those who use a more active approach use brokers or fund managers to buy and sell stocks in an effort to outperform a specific indexlike the S&P 500 Index, for example. A team of people usually manages these funds carefully, and thus management fees are higher for active funds.
Passive Funds Are Making Their Move
For years, active funds have outpaced passive funds in the U.S. Stock Market. However, that trend has been going the other way since the mid-2000s. And the latest numbers show that the balance of power, so to speak, is now almost equal. According to recent data from Morningstar, passive funds have almost matched active funds.
As of the end of April of this year, investors had put $4.305 trillion in passive stock funds. That’s only $6 billion less than inactive funds, which came in at $4.311 trillion. It’s quite possible that when the numbers come out at the end of May, passive funds will have surpassed active ones. This change in the marketplace has been going on every year since 2006.
Why the Switch to Passive Funds?
One of the biggest reasons for the shift is the fees we mentioned earlier. Investors are realizing that the money managers they’re paying so much to help them manage their funds, really can’t beat broad benchmarks of stock market performance. In other words, there is not much reason to pay a fund manager all that money because they offer little or no advantage.
Are Investors Becoming Too Passive?
So the numbers continue to shift to passive funds. In fact, just last month, investors put $39 billion into passive funds, compared to just $22 billion into active funds.
There is some concern the market will take a hit because of too much passive investing. The issue would be that if too much money were put into simply tracking indexes, the rest of the market would suffer. Time will tell if this becomes a problem. But at the moment, it appears that the push by investors into passive funds is not slowing down anytime soon.
We hope you found this article about “Passive Funds in U.S. Stock Market Have Nearly Equaled Active Funds” helpful. If you have questions or need expert tax or family office advice that’s refreshingly objective (we never sell investments), please contact us or visit our Family office page or website www.GROCO.com.
To receive our free newsletter, contact us here.
Subscribe our YouTube Channel for more updates.
Alan Olsen, is the Host of the American Dreams Show and the Managing Partner of GROCO.com. GROCO is a premier family office and tax advisory firm located in the San Francisco Bay area serving clients all over the world.
Alan L. Olsen, CPA, Wikipedia Bio
GROCO.com is a proud sponsor of The American Dreams Show.
The American Dreams show was the brainchild of Alan Olsen, CPA, MBA. It was originally created to fill a specific need; often inexperienced entrepreneurs lacked basic information about raising capital and how to successfully start a business.
Alan sincerely wanted to respond to the many requests from aspiring entrepreneurs asking for the information and introductions they needed. But he had to find a way to help in which his venture capital clients and friends would not mind.
The American Dreams show became the solution, first as a radio show and now with YouTube videos as well. Always respectful of interview guest’s time, he’s able to give access to individuals information and inspiration previously inaccessible to the first-time entrepreneurs who need it most.
They can listen to venture capitalists and successful business people explain first-hand, how they got to where they are, how to start a company, how to overcome challenges, how they see the future evolving, opportunities, work-life balance and so much more..
American Dreams discusses many topics from some of the world’s most successful individuals about their secrets to life’s success. Topics from guest have included:
Creating purpose in life / Building a foundation for their life / Solving problems / Finding fulfillment through philanthropy and service / Becoming self-reliant / Enhancing effective leadership / Balancing family and work…
MyPaths.com (Also sponsored by GROCO) provides free access to content and world-class entrepreneurs, influencers and thought leaders’ personal success stories. To help you find your path in life to true, sustainable success & happiness. It’s mission statement:
In an increasingly complex and difficult world, we hope to help you find your personal path in life and build a strong foundation by learning how others found success and happiness. True and sustainable success and happiness are different for each one of us but possible, often despite significant challenges.
Our mission at MyPaths.com is to provide resources and firsthand accounts of how others found their paths in life, so you can do the same.
Don’t Forget About These Important Tax Write-Offs
The saying goes that it’s the small victories that count. That saying can be especially true during tax time when for many taxpayers any chance to save even a few dollars more is considered a positive. Plus, when you add up enough of the small victories they can equal a significant reward. With that in…
Have You Heard About These New Income Tax Changes?
February is almost over. Can you believe it? That means the annual income tax return deadline is fast approaching. If you still haven’t done your taxes then there are some important changes you should know about. Hopefully, if you’ve already filed, then you were aware of these changes beforehand. If not, and you think they…
Tell Me Your Value Equation
Every company feels like it has what it takes to make a difference in its customer’s lives. No matter what product or service they offer their clients, all companies feel like they can do it better than anyone else. So what makes one company stick out from another? Is it how much money that company…
How to Handle Tough Decisions
Everyone has to make decisions in life and many of those decisions can be very difficult to make. The same can be said for businesses. Decision makers in the business world face a lot of tough choices and some of these choices can actually make or break their companies. So how do they make tough…