Trustnet Magazine 87 September 2022 | Page 10

COVER STORY
Passive vs active

Once you factor in all the different fees and charges , active investors typically pay in the region of five times more to invest than their passive peers

Unbalanced management charge higher fees than those implementing simple rules , largely based on computer programs

● After fees , the return on the average actively managed pound in “ Company ABC ” will be less than the return on the average passively managed pound
Therefore , the average active investor must underperform the average passive investor . To quote Professor Sharpe : “ These assertions will hold for any time period . Moreover , they depend only on the laws of addition , subtraction , multiplication and division . Nothing else is required .” I should also point out we ’ re not talking here about minor differences in costs . Once you factor in all the different fees and charges , active investors typically pay in the region of five times more to invest than their passive peers . You wouldn ’ t dream of paying £ 5 for a pint of milk , or £ 10 for a litre of fuel , but most people similarly overpay to have their money managed , and aren ’ t even aware of it . As Vanguard founder Jack Bogle has said , it all boils down to “ the relentless rules of humble arithmetic ” – a phrase he used for the title of a 2005 paper
/ 10 / trustnet . com