Article: Why is Passive Investing Winning?

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Jun 14, 2016
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Article, Behavioral Finance, Question of the Day, Investing, Mutual Funds, Stocks, Current Events

Great summary of why passive investing is winning by focusing on the leading company in the passive investing space (Vanguard). From the Economist:

Vanguard now manages over $3.5 trillion on behalf of some 20m investors. Every working day its coffers swell by another billion dollars or so. One dollar in every five invested in mutual or exchange-traded funds (ETFs) in America now goes to Vanguard, as does one in every two invested in passive, index-tracking funds, according to Morningstar, a data provider.

This chart shows how investors continue to benefit from Vanguard’s increase in assets under management (AUM):

20160611_FNC575_0

Some questions for  your students:

  • How is Vanguard’s investing approach different from other investment management firms?
  • Do investors who invest in index funds believe that they can beat the market?
  • How does the ownership structure of Vanguard favor investors?
  • How is Vanguard able to keep their costs lower than competitors? How do their costs compare to the competition?
  • What is the difference between defined benefit and defined contribution plans? How does this trend help Vanguard?

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Looking for additional resources that explain passive investing? Here are a few:

About the Author

Tim Ranzetta

Tim's saving habits started at seven when a neighbor with a broken hip gave him a dog walking job. Her recovery, which took almost a year, resulted in Tim getting to know the bank tellers quite well (and accumulating a savings account balance of over $300!). His recent entrepreneurial adventures have included driving a shredding truck, analyzing executive compensation packages for Fortune 500 companies and helping families make better college financing decisions. After volunteering in 2010 to create and teach a personal finance program at Eastside College Prep in East Palo Alto, Tim saw firsthand the impact of an engaging and activity-based curriculum, which inspired him to start a new non-profit, Next Gen Personal Finance.