Episode 28 - Active vs. Passive Investing 2000-2010

In this episode I break out an article I saved from the Journal of Indexes May/June 2011 edition. The article is written by Richard Ferri who wrote the book "The Power Of Passive Investing: More Wealth With Less Work" with a forward by John Bogle. I had never heard of Richard previously but if Bogle is writing his forward well, this may be a guy who has something to say. And sure enough he does. In his article he takes 3 different investors. One is a market timer, one simply buys and holds and the last is a buy and hold BUT with annual rebalancing. All three have the EXACT same portfolio but just have different strategies on how to invest. Who do you think outperforms during the 2000-2010 time frame? The third investor. That investor beat the market timer by 135% and the buy and hold investor by 38%. But wait, I thought active managers are supposed to do better in down markets and you can't get much more down than that decade. Yet, it didn't happen.