The Biz Bucks Blog provides former Biz Bucks students and other busy professionals with a summary and commentary of seminal articles from the opinion pages of the Wall Street Journal. You can be notified of a new posting by subscribing to the blog (enter email in box on right) or by following on Twitter: @BizBucksGuy.

A Malkiel Redux May 29, 2013 9:00 AM | Tagged as index funds, investing, Makiel

WSJ May 29, 2013 Page A15 – “You’re Paying Too Much for Investment Help” by Burton Malkiel

Burton Malkiel is a hero to The Biz Bucks Guy. His 1973 book, A Random Walk on Wall Street is a classic and spawned the index fund industry.  Together with John Bogle, founder of index-purveyor Vanguard, Malkiel has saved millions for millions. 

Simply put, Malkiel’s thesis is “we are better off riding the market than trying to beat it.”  Index funds are passive mutual funds that simply track a market index such as the S&P 500 or the Wilshire 5000. The most important point is this: index funds are cheap, meaning the amount of administrative fees you pay is minor compared to actively managed funds. But you may ask, “Don’t I get better returns from active managed funds?”. The short answer is “Nope!”  In this latest article in the WSJ today, Malkiel updates the data.

Index funds, each year, beat the performance of about two-thirds of the active fund managers. OK, so try to  find the other one-third, you might say. There is a problem. Most of the other one third only outperform the market for one year, then they fall back into the two thirds. Over a five year period ALMOST NO ACTIVE MANAGED FUND BEATS THE MARKET ITSELF. And you, you Warren Buffet Wannabee, have paid some three to five times the administrative fees for this lack of performance.

Do these administrative fees add up? You bet. If a fund advertises they ONLY take 3% of your assets to actively manage your portfolio, consider this. In a good year, you might make 7%. That means you net out about 4% for an actively managed fund. With an index portfolio, these passive funds will allow to keep about 6.8%. Do the compounding of that difference for ten years and see how you feel!

Malkiel’s op-ed piece concludes, “The lesson for investors is very clear: You can't control what markets can do, but you can control the costs you pay. The less you pay to the purveyors of investment services, the more there will be for you. The quintessential low-cost investment vehicles are index funds, which should comprise the core of every investment portfolio. The high fees charged for active management cannot be justified.” 

Posted By The Biz Bucks Guy
Posted in Investing | 0 Replies

Subscribe to Our Blog

To receive email updates when a new post is made, please enter your email address in the box below and click Subscribe.


Use these key words to search past blogs:



1994 97% Alesina Recession Alinsky Allesina austerity Baloney BAT Binz bird kills Bogle Border Adjustment Tax Brulle Bryce capitalism carbon Carbon Dioxide CBO CFTC chains China Churchill Climate Climate Change Clinton Comparative Advantage Crichton Cronyism Cummins Curry Darwin Death panel demographics population economics Denier derivatives Dodd-Frank Drug dynamic Dynamic Scoring education electric car Energy Energy Policy Enron Debt Entitlements Eugenics Fat Fry Flat Earthers fracking free markets free trade Free Trade E-Verify Free Trade Zoellick Freedom Heritage Foundation Friedman gas lines Gas Prices glaciers Global Warming Global Warming Sustainability global warming subsidies IMF Globalization Trade God Google Gore Gramm Green Blob Grifo Groupthink Growth Hannity Hayek Hostess Hybrid Immigration Imports index funds Indexing Intellectual Denial investing investment IPCC JFK Joint Tax Kennedy Kerry Keynes Keynesian Keynesian Tax Cuts King Barak Bird Kills Koch Koonin Laffer Lamar Smith Lomborg macroeconomics macroeconomics;static; dynamic MACT Makiel markets Marxist medical care minimum wage Mitchell Model T Moore Morgenthau Navarro Neumark NOAA NY Times Obamacare ObamaCare Rove Health Insurance O'Reilly participation rate Patrick Moore peer review Peer Review EPA Piketty Pipelines plywood Presidential authority Price Controls Pruitt Racial divide Rare Earth Reagan Recession REE Renewable Portfolio Standards Renewables Ricardo Ridley robotics RPS Ryan Schlaff Science science integrity scoring Settled Science Shaffer shortages socialism socialized medicine Solar Panels Solvaldi Sovaldi static steel STEM Stephens Steyer stimulus subsidies subsidy sugar Supreme Creator tax policy tax reform Taylor territorial taxes corporate taxes Tesla Trade train wreck Trump unemployment wages Wind wind power women Zuckerman