Bloomberg Audio Studios, Podcasts, radio news. Welcome to Meren Talks Your Money, the personal finance edition of Marin Talks Money, and these bonus podcasts we talk about the best reateitudes for making the most of your money. I'm merenthums Up Web and with me as ever senior reporter and Money Distorted for John Staberg.
Hi John, Hi mel.
Now we are very lucky.
Our very kind listeners do keep sending in questions, and so we have one we want to answer today, and do keep sending them in.
The only thing I would.
Say about this question is it is an excellent question. I don't want you to think for one second that it is not an excellent question. But it'd be easier for us to answer with a little more detail.
And you will see that as I read it out.
Okay, so here we go, Yeah, Maren, very much, enjoy your excellent podcast.
Thank you very much, Robert. The letter comes from Robert.
As everyone knows, the more you flatter us, the more likely you are to have your question answered, and that's exactly the way it should be. So anyway, very much,
enjoy your excellent podcast. And I have a question that maybe of interest to discuss It is much discussion over which fund and which market to invest in, But what is the actual data, say, from the last forty years of picking a mixed bag of funds and ETFs and investment trusts versus just putting it all on the low cost Vanguard World Tracker or a combination of passive trackers.
Now you'll see that what I mean by a little more detail, What do we mean by a mixed bag of funds and ETFs and investment trust I mean we've had a random mixed bag. And if you have a big enough mixed bag, then in the end it's going to pretty much hedge towards the performance of a tracker anyway. So it's difficult to look at that and come up
with a with a clear answer. If you'd send something in with the specific funds or a specific type of fund or investment trust them, it would be easier to be clear.
But nonetheless the question remains valid.
So onwards, so much discussion which fund to purchase, But maybe it simply isn't necessary as fund managers only ever outperform for a few years. If you could send all your hate mail on that directly to John, so I don't have to deal with that fund managers. Thanks very much more from Robert. I'm an avid investor and I'm trying to advise my children, and as their timelines are longer, I want to give them good advice.
Thank you from Robert.
So it is a great question, basically saying, is there any point in investing actively when you can just buy passively and be done with the whole thing?
Now, John, what's the answer?
I mean, this is a really good question. Yeah, So Robert was asking about the last forty years, so I pulled up the Bloomberg terminal, which is very helpful for these things.
Super helpful. Everyone should have.
One exactly anything about us allocation in like four points, so like boins, cash, golden equities. But if you're talking about a young person, yeah, and we're also talking about let's just assume that your gold's going to be startic, your boins are going to be broadly STATICSH, and your cash would be STATICSH. So let's just focus on equities for this. So if you go back to nineteen eighty seven, so I couldn't quite get back to eighty six, but
that's like pretty much forty years. So the MSCI world index, the one that includes emerging markets, and talking about Sterling terms, it's returned roughly nine percent a year in sterling over the last forty years, unless park inflation, because that's not relevant to the discussion. We're just talking about in nominal terms. That's what you would have had to have beaten with a mixed portfolio that you chose yourself to beat the Global Equity Index tracker. And well, so let's look at
a couple of good compartitors. If you bought Scottish Mortgage Investment Trust in nineteen eighty nine, which is when it kind of came out, you'd have done almost thirteen percent a year for about eight and a half percent for the tracker over that period.
Well though they would be clear, I have also been bad times. Oh god.
Yeah.
And if you'd done if you'd bought it, I mean, the best investor in the world, or you know, they acknowledged the best investor in the world, Warren Buffett. If you'd bought Berksher Hathaway in nineteen eighty seven, you'd have my sixteen and a half percent a year, which is obviously a lot more than nine percent. I mean, that's pretty pretty tasty, but I think the basic problem here
is that there's so many other things. I mean, for I don't think I think someone could conceivably have put all of their equity money into Barksher Hathaway and not felt uncomfortable about that in nineteen eighty seven, because one Buffett already had this amazing reputation. I certainly don't think any sensible investor would have put on hundred percent of their equity allocation into Scottish Mortgage Trust in nineteen eighty nine.
I can see that might have happened when it hit big, and people might have thought, oh, you know, James Anderson Etster, just like you know, the best funy manager in the world, I'm going to put But I don't. I don't think that would be advisable, and I don't think most people
would have thought like so. I guess I'm making the point that beaten nine percent a year through active management would have been a challenge I think over the last forty years, which is like to say that passav is definitely going to do better over the next forty but it's quite a high hoddle.
It certainly is.
And the only thing I would say about that is if you're just buying one passive fund and you're buying global index.
There's a lot going on there.
That we've talked about a lot of the last few years is that first, you're effectively a momentum investor.
You didn't mean to be, but you are.
That's worked very well for a period of time, but it won't necessarily keep working. You're also very over exposed to the US, and you're very over exposed to the technology sector in the US in particular. And again, maybe
that's fine, and it's been fine for a while. But one of the things that everybody talks about on the POT and John you write about it and I write about is this idea that we are now in at the beginning in the foothills of a great rotation away from tech, probably away from the US being the biggest and greatest market everywhere. Not that not that it'll stop being great, but that it might stop being less great relative to its competitors.
So it may be that.
That style of passive, effectively momentum investing doesn't work quite as well over the next twenty thirty years as it has over the previous. And the other thing say is, if you're not doing that you're not being a simple, one stop shot passive investor using a global index ETF like that. There is no such thing as passive investing. Yes, you have to choose your ETFs, you have to choose your markets. You still have to do your own acid allocation.
And once you're doing that, you're already into the whole world of active There is no such thing. Well, there is a combination of passive trackers, but there's no such thing as a passive combination of passive trackers.
Right, yeah, exactly.
Yeah.
Everything is active.
Everything is active, and even going fully passive is an active decision to be a US tech heavy momentum investor. That's been a great decision for a long time. Will it's still be a great decision. And this is why this question is kind of it's fairly unanswerable. It's fairly unanswerable.
And one thing you can do is to not go into a market cap tracker where you've got more in the biggest companies, so you are very much a momentum investor, and to go into an equal weighted tracker and not nearly so easy to get by the way, whereby you're not a momentum investor.
Because you hold.
Each each constitute of the index in equal weights, a different way to do passive, and it's a non momentum way to do passive because your holdings are constantly being rebalanced, that you are effectively a passive value investor.
Yeah, And I think the other thing that issues for because you're absolutely about the mass allocations, say the things. Because I was looking at again the Global index tracker we were just talking about, So in nineteen eighty seven it had about thirty percent of assassets in the US and now it's sixty one percent, whereas in nineteen kind of they'll delete. Nineteen eighties it had actually about forty percent in Japan and now that's down just over five percent.
So I think one starting point if you would, if we were turning around just now and saying, right, well, do I want to go fully you know, fully passive? I don't want to go slightly more active? You could look at the allocation or the global allocation and perhaps also the sector allocation that the global tracker has got and then figure out how am I going to be different to that? As a starting point, So what is it about this? If I think I can beat this?
What would I do differently to the global tracker. Should I have more in for example, UK stocks, you know, should I have like, you know, twenty percent instead of three percent? You know? Should I boost my exposure to specific emergent markets, perhaps emergent markets that exclude China or you know that sort of thing, And should there maybe have a quarter in my portfolio in the US rather
than the full thing? And then again within that you can turn and say that, well, which of these should be equal weighted and which should be kind of momentum model, you know, so market cap weighted. So I think it's a useful reference point to at least know what the global track it looks like.
Oh well, okay, okay, loss to think about that.
I think that's probably enough before instead of answering the question, we make everybody even more confused. But I suspect this is something that we'll come back to because John and I talk a lot about passive investing, active investing in which way you want to go and how each one fits the environment around it. So more to come on that, definitely. Robert, thank you so much for your question. It was a
great question. And other listeners please do you send in your questions remember the flattery at the beginning if you want them to answered. Thanks for listening to this week Maren Talks to Your Money. If you like our show, rate review, and subscribe wherever you listen to podcasts. Also, be sure to follow me and John on ex or Twitter at marinow and John Underscore Step.
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And Moses, and questions and comments on this show and all our shows are always welcome. Our show email is merin Money at Bloomberg dot net.