Stock pickers are worse at picking stocks than investors may realize, report finds

From Ryan Vlastelica via MarketWatch.

The argument behind passive investing, and the reason it has been the overwhelming choice of investors over the past decade, is simple: data has repeatedly shown that not only does it offer an extremely high likelihood of better long-term performance, but it does so for vastly lower costs.

About the latter point there is no dispute. Passively managed funds — which simply mimic the performance of an index like the S&P 500 rather than trying to outperform a benchmark through individual security selection, as with an actively managed one — are significantly cheaper, one of primary reasons that investors have poured hundreds of billions of dollars into them in recent years, redeeming a similar amount from active ones.

According to data from Morningstar, actively managed funds carried an average fee of 0.72% in 2017, nearly five times the 0.15% average charged by passive funds. An actively managed product would have to do significantly better than the index over time to be worth the additional cost.