How to Choose a Fund Manager

How to Choose a Fund Manager

Over the past year, I’ve come across some pretty interesting studies about fund managers. Based on the research, let’s take a look at who the ideal fund manager is:

Top Performing Fund Managers:

  1. Drive “Practical but Unexciting” Cars – Fund managers who drive sports cars take on more risk… but the risk doesn’t translate into better returns. So, make sure you’re checking the parking lot before choosing your fund manager!
  2. Are from Poorer Backgrounds – It turns out privilege puts people in positions they don’t necessarily deserve to be in. Fund managers from poorer backgrounds may have to prove themselves more because of their lack of connections or status, so the ones that make it are smarter and have more grit than the ones that got a “leg up” to get there.
  3. Actually Do Very Little – This article is about Nevada’s 35 billion dollar fund manager. He describes his method as “bare-bones.” The article says: “The Nevada system’s stocks and bonds are all in low-cost funds that mimic indexes. Mr. Edmundson may make one change to the portfolio a year.”

Be Your Own Manager:

The key, as Mr. Edmundson from the Nevada fund would tell you, is low-fee index funds. Even if you don’t choose Vanguard funds, you can thank Vanguard for creating The Vanguard Effect – The combined savings of Vanguard’s low fees added to the driving down of prices in the industry leading to a savings of over $1 Trillion to the consumer!*

Maybe this is the end of investing as we know it if everyone jumps on the passive funds train. Or maybe you think index funds are communist (I don’t make this stuff up!). Then make up your own mind… but for now, I’m going to drive my sensible car and put my money in index funds and leave it alone!**


*This is similar to the “Costco Effect” in Anchorage. We’re told to be grateful we live in Anchorage after Costco came because before that, prices were much, much higher. 

**I can’t claim I don’t have the privilege card, because I do

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6 Comments

  1. It’s interesting to see how roboinvestors will influence this. We’ve been really happy with Vanguard for our Roths and for our taxable savings. You literally cannot beat the fees, as you said.

    • MaggieBanks

      Agreed. Things will definitely change… but they make total sense for at least the time being…

  2. We’re fully committed to index funds for now, but something to consider. If everyone went to index funds opportunities would open up for the active manager to take advantage of individually misvalued funds. There is some balance point where arbitrage opportunities open up. We’re a long way from it today, but you never know.

    • MaggieBanks

      That’s true… I just have a hard time seeing that happening. Index funds are popular in our cohort, but I don’t think they’ll pick up in popularity to that degree among the general investor.

  3. Yay for the Vanguard Effect! I can’t imagine hiding a manager for my money. I quiver when a co-worker talks about his or her financial advisor. My co-workers are smart, educated people. They don’t need an adviser or manager. But, somehow, they’re convinced they do. When I tell them they should just manage it themselves, they look at me like I have two heads and probably have pity for me, thinking what could a little woman know about money. It’s awesome 🙂

    Mad Money Monster

    • MaggieBanks

      We PF geeks like to get our hands a bit dirty and manage our own investments. But that is VERY rare among regular folk! 🙂

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