- Peter Lynch
Passive approaches to investing are based on the belief that markets are largely efficient. Inefficiencies can occur under the efficient market hypothesis, but adherents believe the inefficiencies are difficult to identify, hard to exploit profitably, and disappear quickly.
Advocates of passive investing believe that over time, the vast majority of managers cannot add value in excess of their costs. By definition the aggregate gross performance of all market participants (active managers) must equal the broad market and the aggregate performance of all active managers must underperform the broad market by the average fee. Furthermore, passive investors contend that the vast majority of fund manager outperformance is more attributable to luck than skill and that even if there was evidence of skill, distinguishing the lucky from skillful is extremely difficult.
Passive Investing may be right for you if:
- You believe markets are generally efficient or you believe inefficiencies are hard to find and exploit profitably
- You don’t believe an active manager can add consistent value or you don’t believe that it is possible to distinguish luck from skill in active management
- You wish to minimize costs
- You seek tax-efficiency
Flat Fee Portfolios offers two distinct passive strategies utilizing ETFs and Dimensional Funds. While the philosophy behind each approach is different, both strategies are low-turnover and low-cost with the blended expense ratio averaging about 0.30%.