When it comes to choosing to work with asset managers on behalf of our clients there is no shortage of options. There is Schwab, AQR, American Funds, Vanguard, BlackRock and the list goes on. We have, for a long time, chosen Dimensional Fund Advisors as our primary asset manager for the funds we choose for our clients. The philosophy that they use is evidence-based investing. The choices that they make are backed by decades of research from Nobel Laureates and financial science. To us, this approach to investing just makes logical sense.
The strategy uses common sense, data, and financial science to boost performance.
In the hallowed halls of academia, noted professors at the top business schools are teaching entire semesters on the benefits of investment strategies using passive indexes instead actively managed mutual funds or picking stocks.
As of 2017, more than $4.5 trillion has flowed into passive index funds and exchange-traded funds. What is passive investing, why are trillions of dollars flowing to this strategy, and more importantly is there a better way to invest?
To fully understand passive investing, it is helpful to understand active investing. Here investment managers (or investors doing it on their own) try to outperform the overall stock market or a specific part of the market using strategies such as fundamental and technical stock picking or market timing.