Why Doesn’t Everyone Use Passive Investing?

Guest post by Contributing Editor, Lowell Herr, ITA Wealth Management. Lowell is a subscriber to the Portfolioist and his investment philosophy is similar to ours.  Enjoy.

If passive investing is so successful, why is it that so few investors actually use this approach to construct and manage their portfolios?

Good question and one that likely has a score of answers.

Here are a few to consider:

1.  There is a large collection of investors who are confident they can beat the market.  Ego certainly enters into this thinking.  Why would I be investing if I did not think I could outsmart the majority of other investors?

2.  Index investing does not have “water cooler” appeal.  For some reason, discussing specific companies generates more interest than talking about broad asset classes.

3.  Active investors are influenced by Wall Street buzz and advertisements.  Millions of dollars are spent hooking investors and feeding them active management propaganda.  This comes from newsletters, business magazines, television business shows, and friends who don’t know there is another choice.

4.  I maintain one of the biggest reasons investors continue down the active management path is that they don’t have a clue how well their portfolio is performing when measured against an appropriate benchmark.  In addition, they do not take portfolio risk into account.  Even if they think about risk, they have no way to accurately measure it.

Remember, you cannot manage what you do not measure!

About Lowell Herr and the ITA Wealth Management Blog:

Lowell Herr is a retired physics teacher with a love of classical music, photography and investing. Lowell began the ITA Wealth Management blog back in 2008. Visit the ITA Wealth Management blog to learn more about Lowell’s investment philosophy and outlook on long-term investing strategies.

(Disclosure: The views and opinions expressed here are those of the author(s) and do not necessarily reflect the views of the Portfolioist. ITA Wealth Management is unaffiliated with FOLIOfn Investments.)

Related Links:

Folio Investing The brokerage with a better way. Securities products and services offered through FOLIOfn Investments, Inc. Member FINRA/SIPC.

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