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:
- 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!
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.
- 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.