Decision Tree: Active vs. Passive

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Jun 12, 2017
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Chart of the Week, Behavioral Finance, Question of the Day, Research, Index Funds, Mutual Funds, Current Events

Sometimes a simple model or flow chart elucidates a complex question. Here is one example of that principle (from Mr. Zepczynski’s blog):

 

Questions:

  • What are the three questions that you have to answer in the affirmative (with a YES) in order to be an “active investor?”
  • Which of the three questions do you think is most difficult to answer? easiest to answer?
  • What is meant by market efficiency? Can you think of examples when the markets may NOT have been efficient?
  • How would you know if a manager can take advantage of market inefficiencies and beat the market’s returns?
  • Why do you think it might be difficult to find “good managers?” How would you go about defining “good?”
  • After going through this exercise, how would you answer this question: Active or Passive?

 

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.