Passive Index Funds Are No Panacea

Timothy Armour recently wrote a column for CNBC about why passive index funds are not a cure-all for what ails the managed investment fund industry. High fees and excessive trading are a problem, to be sure, but investing only in passive index funds will expose investors to the risks of unexpected volatility or extended downtrends.

Recent surveys have found that only half of investors understand that passive index funds fully expose them to market volatility and downtrends. This might be caused by the length of the current bull market. If investors haven’t seen a protracted loss in capital markets, they may forget about the dangers of holding the entire market when it does turn against them.

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The reality remains that there are managed funds that outperform the markets. For example, an investor who had the insight to invest in the best of American Funds, such as The Growth Fund of America or The Investment Company of America, would have been able to beat the S&P 500 over the past 40 years.

Timothy Armour is the independent director of Janus Capital Group, Inc. as well as the independent chairman of AQR Funds. He has also served on the Board of Directors at Janus Capital Group, Inc. In the past Armour has been the managing director at Morningstar, Inc, president of the mutual funds division at Stein Roe & Farnham, Inc., and served on the board of Janus Capital Management LLC, AARP Services, Inc., and ETF Securities.

Timothy Armor received his Bachelor of Arts in Business from Gettysburg College and an MBA from Columbia Business School.

Find more about Tim Armour: https://en.wikipedia.org/wiki/Capital_Group_Companies

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