Morgan Stanley’s Head of Global Developed Markets, Gerard Minack, announced his retirement last week. It was reported that Mr. Minack gave “amazing investment advice” right before he left Morgan.
- Don’t try to pick stocks
- Don’t try to time the market
- Just invest in a portfolio of low-cost, tax-efficient index funds
Can I get a retweet? These are some of the canons of Betterment’s investment philosophy since inception! The bummer is that Mr. Minack was attacked by some as the story went out (one commenter went as far as to call him “a failed analyst”); Here’s a breakdown of Mr. Minack’s supposedly outrageous arguments:
- On average, 60% of funds lag the market.
- Over longer periods, the percentage of funds that lag the market is much higher.
- Investors are terrible at market timing. They put money into the market after stocks have done well for a long time, and they pull money out when stocks have collapsed.
- Because investors are lousy at market timing, their actual returns are far worse than the market returns or the average fund returns. They sell before funds do well and buy before they do badly.
- Hedge funds aren’t the move either, because of the super high fees and recently lackluster performance.
We agree! Active investing is a negative sum game – someone has to lose for someone else to win. The limited reward of active investing is not incentive enough to chance being the loser.
Think of it this way: If active managers add value, it’s at the expense of other active investors. That’s because if a skilled active manager is overweight an undervalued stock, that means other active managers must be underweight it. Before fees and expenses, trading is a zero sum game – ignoring these explicit costs, skilled investors’ returns are at the cost of other investors. Now factor in fees and expenses – because like at the poker table, everyone must ante up. If you’re paying a skilled investor, your returns are eaten into. If you’re paying the cost of the “other” investor, that’s more of your money lost to active management.
And we cannot say enough about timing the market. It’s simply a poor idea.
There’s a lot of noise around the “best way” to invest, and passive investing is nothing new. Vanguard, Barclays Global Investors and State Street built their household names around it. Morgan Stanley, however, is not a passive shop. This is not like Jack Bogle left and told everyone to invest passively – it seems like Mr. Minack’s wisdom is objective and after years of global markets strategizing, simply what he thinks is best.
Are you on board with this investment philosophy? Open a Betterment account or tell a friend about us. We do all the things he recommends automatically so you don’t have to. We don’t time the market, we don’t pick stocks, and we do invest in a portfolio of low-cost, tax-efficient index funds. We also provide customized asset allocations based on time horizon and other determining factors. Our fees are amazing, too, because they won’t erode your returns.
Mr. Minack, have you checked out Betterment?
How to Prioritize Your Financial Goals
If you identify all your financial goals for investing, you’ll likely find you can’t fund them all at once. Get our expert view on how to start prioritizing them.
How We Use Your Dividends and Deposits to Keep Your Tax Bill Low
Every penny that comes into your account is used to rebalance dynamically—and in a tax-savvy way.
How Does Betterment Calculate Investment Returns?
Understanding and using time-weighted and money-weighted returns within your Betterment dashboard.
Explore your first goal
This is a great place to start—an emergency fund for life's unplanned hiccups. A safety net is a conservative portfolio.
Whether it's a long way off or just around the corner, we'll help you save for the retirement you deserve.
If you want to invest and build wealth over time, then this is the goal for you. This is an excellent goal type for unknown future needs or money you plan to pass to future generations.
How would you like to get started?
Your first step toward a smarter investing future starts here.
Create a Betterment account
Go ahead and join the smart, modern way to invest.
See what we can do for you
Tell us a bit about yourself, and we'll show you the benefits of investing with us.
Get a free investing checkup
Help us get a sense of your investing approach and see how you could improve.
Transfer a 401(k) or an IRA
Move an existing retirement account into a Betterment IRA.
Download the mobile app
Enjoy the Betterment experience anywhere on the go.