Trick Question: What Performs Better Than Index Funds?

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Few teachers upset their students on purpose. But I do it every semester.

“Broad index funds comprise every stock in a given market,” I explain to my high-school personal finance class. “Nobody trades them. Actively managed funds, on the other hand, have managers at the helm, sniffing out the very best stocks.”

Students guess actively managed funds are better. I agree. Then I assign a task: “Find peer-reviewed academic evidence.”

I teach at a private international school in Singapore. The popular kids aren’t Paris Hilton wannabes – they’re future Harvard, Yale and Stanford alumni. Most are ferocious researchers.

But after 40 minutes of scrolling through academic financial papers, even the brainiest kids grumble: “We can’t find evidence; everything says the opposite.” “Keep looking,” I respond.

Read the rest of the article at the Globe and Mail





Andrew Hallam

I’m a financial columnist for Canada’s national paper, The Globe and Mail, as well as for AssetBuilder, a financial service firm based in Texas. I’m also the author of Millionaire Teacher: The Nine Rules of Wealth You Should Have Learned in School (2nd Ed. Wiley 2017) and The Global Expatriate’s Guide To Investing: From Millionaire Teacher to Millionaire Expat (Wiley 2015). My mission is to educate, motivate and inspire people on basic retirement planning and best practices for investing, using evidence-based strategies. I’m happy to comment on your questions. However, please read the Terms of Use, Privacy Policy and the Comments Policy.

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6 Responses

  1. Eve says:

    Hi Andrew,

    I absolutely love you book. Great job and awesome research.

    Now, the Dow is at 16000, I really want it to fall so I can buy low, but I am not sure if it’s going to happen in the near future.

    Should I invest 50% to the bond and 50% to the stock now and rebalance when the market falls?

    Where do you see the market is going in the next 5 years?

    • Hi Eve,

      I don’t speculate where markets are going. And if the markets didn’t continue hitting new highs every few years or so, we couldn’t make money in stock indexes. So the highs are normal. That said, your approach to go 50-50 is prudent regardless.

      I’m glad you liked the book!

      Cheers,

      Andrew

  2. Barry says:

    Just had a look at the model portfolios – Chris Umiastowski’s model growth portfolio is going great guns currently and near on double most other portfolio’s

    Maybe he should tip it into an Index Portfolio now though :o)

  3. Eve says:

    Hi Andrew,

    You must have done lots of research and read lots of books to write such a great book. Could you recommend any good books to read in finance, personal development or any other books you read in any category?

    thanks

  4. Dave says:

    Hi Eve,

    https://andrewhallam.com/books/

    & also try the resources link from the menu.

  5. Caitlin says:

    Hello Andrew,

    Thank you for your blog & book! I am reading both in conjunction with The Canadian Couch Potato blog and both have been extremely informative for a newbie DIY investor such as myself.

    I am a 30-yr old professional and have savings in an RRSP and TFSA (under $25000). I am invested in TD Balanced & Dividend Mutual Funds for both. However, I am wanting to transition my investments to a Global Couch Potato portfolio using the TD e-Series index funds of the following mix:

    Canadian equity 25%: TD Canadian Index – e (TDB900)
    US equity 25%: TD US Index – e (TDB902)
    International equity 20%: TD International Index – e (TDB911)
    Canadian bonds 30%: TD Canadian Bond Index – e (TDB909)

    My investment needs are twofold:
    1. Long-term (retirement) – I won’t access this money until retirement
    2. Short-term (house down payment) – I will need to access this money in 2-3 years

    I am seeking your advice in how I should allocate my current & future savings into my RRSP & TFSA using the Global Couch Potato strategy to accommodate both short-term (greater liquidity & lower volatility) and long-term (lower liquidity & higher volatility) needs. Would you have any insights in terms of asset allocation with this in mind?

    Thanks very much,

    Regards,
    Caitlin

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