Investment Adviser

[wwkayaker]

Couch potato portfolio:

http://canadiancouchpotato.com/couch-potato-faq/

[Slava]

Originally Posted by mustache ride

How much do you need to start with an advisor? If you go in with less than 50K are they going to laugh you out the door?

No. There are some advisors that have account minimums, but you can ask upfront. In some cases you can't provide the same services for someone with a small account as you can for someone with a larger account, but it's not a deal breaker in most cases.

[GGG]

Originally Posted by Dion

My advisor will give me the past performance of a number of funds and then suggest why he thinks this fund is the one to buy. He will also explain why I should move from one fund to another and why market conditions are indicating a change is in my best interests. I should also add that i'm not a huge follower of the market and have limited knowladge of all the funds out there. In the end there is a certain amount of trust I give to my advisor. That and the fact he explains it in a financial language that I can understand.

Theres a lot of research statistcal analysis that shows that a financial advisors performance against the index is not statistically distinguishable from luck. Based on this I see the only benefit ti an adivsor is managing risk, and tax planning. The act of picking a good stock or timing the market is just not consistantly repeatable.

[Slava]

Originally Posted by GGG

Theres a lot of research statistcal analysis that shows that a financial advisors performance against the index is not statistically distinguishable from luck. Based on this I see the only benefit ti an adivsor is managing risk, and tax planning. The act of picking a good stock or timing the market is just not consistantly repeatable.

I completely disagree, and although I have an inherent bias, there are a few issues here. First, the idea of indexing is great and I use ETFs in my practice, but they only get you so far. It's true that they're cheap, and that's a good benefit of course. The fact is that beating the market isn't the main point though. An index investor never beats the market, by definition, so to suggest that it's a better way to go because the other person can't beat it is just silly.

The purely passive advocates still make a lot of active decisions as well. Asset allocation being one major component. All ETFs are not created equal either. There are still significant decisions to be made by the investor, and just using a robo-advisor (Ala wealthfront) is a pure one size fits all 'solution' to a problem that is nowhere near one size fits all.

Then we look at real world experience. It's cute to cherry pick the good news index stories, but they aren't all like that. The TSX only hit its mid 2008 level this year. That's six full years of being under water if you bought at the top. And of course a passive investor would buy at the top, because they're not making any active calls, right? Meanwhile most mutual funds (which are not a fair comparison, but the ETFs industry loves to point to them anyway) regained their value a fee years ago.

I have said it before on this board, but pure indexing just leaves a lot of money on the table in my opinion. There are better ways to structure things then just throwing your hands in the air and doing the bare minimum.

[GGG]

Originally Posted by Slava

I completely disagree, and although I have an inherent bias, there are a few issues here. First, the idea of indexing is great and I use ETFs in my practice, but they only get you so far. It's true that they're cheap, and that's a good benefit of course. The fact is that beating the market isn't the main point though. An index investor never beats the market, by definition, so to suggest that it's a better way to go because the other person can't beat it is just silly.

The purely passive advocates still make a lot of active decisions as well. Asset allocation being one major component. All ETFs are not created equal either. There are still significant decisions to be made by the investor, and just using a robo-advisor (Ala wealthfront) is a pure one size fits all 'solution' to a problem that is nowhere near one size fits all.

Then we look at real world experience. It's cute to cherry pick the good news index stories, but they aren't all like that. The TSX only hit its mid 2008 level this year. That's six full years of being under water if you bought at the top. And of course a passive investor would buy at the top, because they're not making any active calls, right? Meanwhile most mutual funds (which are not a fair comparison, but the ETFs industry loves to point to them anyway) regained their value a fee years ago.

I have said it before on this board, but pure indexing just leaves a lot of money on the table in my opinion. There are better ways to structure things then just throwing your hands in the air and doing the bare minimum.

I will try to link a few articles later but how do react to the studies that show year over year advisor performance above and below indexes is indistinguishable from luck. I do agree with you that advisors play an important role in balancing an managing risk but in terms of long term year over year games as a group investment advisors wether it be stocks or mutual funds dont out perform the market. So any advisor who is making pics that they believe are better or worse in terms of future performance advice is no better than shooting darts at a dart board.

I am not trying to disparage he services you provide and use as advisor for limited purposes but picking stocks or mutual funds that out perform a simple index as described by Dions post is not something that any advisor can do.

[HockeyIlliterate]

Originally Posted by Enoch Root

However, it is the mistakes along the way that will really hurt you. One bad decision, one mistake with respect to tax planning, etc, will likely cost you far more than any amount of fees you saved along the way.

Perhaps, but if an individual is getting ready to make a significant decision with regard to their investments, the prudent person would likely conduct research and (if needed) procure the services of a tax professional as a one-off event prior to making the decision.

Simply paying, on an ongoing basis, for advice that isn't needed doesn't make a great deal of sense to me.

Originally Posted by Enoch Root

We provide a lot of services and value for our clients, but at the end of the day, I think our most important and valuable service is helping our clients avoid the mistakes and the emotional decisions that can derail years of hard work.

One element of being a successful investor is simply staying the course and being boring. If someone can do that successfully, I don't see the point of paying someone else to tell them to ignore the noise, not do anything, and just stand there.

Originally Posted by Slava

An index investor never beats the market, by definition, so to suggest that it's a better way to go because the other person can't beat it is just silly.

I like being average. In fact, being average in finance is, as someone else said*, pretty darn good.

* See here: http://www.forbes.com/sites/realspin...-stock-market/

Originally Posted by Slava

Then we look at real world experience. It's cute to cherry pick the good news index stories, but they aren't all like that. The TSX only hit its mid 2008 level this year. That's six full years of being under water if you bought at the top.

I guess, but even if you did buy at the top, the index fund threw off dividends (which the "passive" investor would, presumably, reinvest back into the fund), so I'd be surprised if it took a "full six years" to have a portfolio balance equal to what it was in mid-2008 (or whatever cherry-picked year you'd like to use).

Originally Posted by Slava

And of course a passive investor would buy at the top, because they're not making any active calls, right?

I'm not sure where you get that idea from. Many "passive" investors buy (and buy and buy and buy and buy and buy) and hold...

And many "passive" investors rebalance in order to maintain their desired asset allocation as well (either by buying what is underweight or selling what is overweight and buying what is underweight).

Originally Posted by Slava

Meanwhile most mutual funds (which are not a fair comparison, but the ETFs industry loves to point to them anyway) regained their value a fee years ago.

I'd like to see the comparison on that one.

All too often the mutual fund(s) used in the comparison aren't the same fund during the entire time span being reviewed, so that what you really are comparing is an "index" of mutual funds v. a single index*, or dividends/cap appreciation/gains are included in one comparison but not in the other, or the fund(s) being compared are really comparable to the index they are being compared against, or the comparison changes the composition of compared-index over time, or, well, you get the idea.

* Which is particularly grating, because, well, who really cares how great some mutual fund was from, say, 2004 to 2008? What you care about is which mutual fund will be the best one next year. And good luck figuring that one out, year after year after year after year after year from now until you stop investing.

[Slava]

Originally Posted by GGG

I will try to link a few articles later but how do react to the studies that show year over year advisor performance above and below indexes is indistinguishable from luck. I do agree with you that advisors play an important role in balancing an managing risk but in terms of long term year over year games as a group investment advisors wether it be stocks or mutual funds dont out perform the market. So any advisor who is making pics that they believe are better or worse in terms of future performance advice is no better than shooting darts at a dart board.

I am not trying to disparage he services you provide and use as advisor for limited purposes but picking stocks or mutual funds that out perform a simple index as described by Dions post is not something that any advisor can do.

No, it doesn't offend me in the least. In truth, I love talking about these things! But lets not cloud the issue here. If the point is to beat the market (I say it isn't in fact), there is one strategy that simply cannot do it and the other is an advisor picking securities.

I also think that there are strategies and methods to get better results and those have proven consistent on a longer term basis. A lot of the evidence against active management uses straight mutual funds and pits them against the index as a whole. This is not sensible on a few fronts, namely you always pay a fee for buying the index so its disingenuous to suggest that you can just buy the index fee free, they double-count funds in many cases which seems to muddy the waters and of course the obvious point that there are many other ways to invest. I always find it peculiar that the ETF providers (who have a vested interest) always show their product against the mutual fund, but not a basket of stocks that would have no MER and theoretically would track the market. When you consider that kind of factor suddenly the fees of the ETF look higher though, so I suppose that doesn't fit the narrative.

[wwkayaker]

DRIP Investing with regular purchases to maximize dollar cost averaging.

[HockeyIlliterate]

Originally Posted by Slava

. . . namely you always pay a fee for buying the index so its disingenuous to suggest that you can just buy the index fee free . . .

This simply isn't true.

At least in the US, you can buy Vanguard's Total Stock Market Index Fund (and many, many others) fee-free.

There is, of course, an operating expense charged by Vanguard that you incur once you own the fund (currently running at an 0.05% expense ratio for Admiral funds), but simply buying it does not incur a fee.

[HockeyIlliterate]

Originally Posted by Slava

I always find it peculiar that the ETF providers (who have a vested interest) always show their product against the mutual fund, but not a basket of stocks that would have no MER and theoretically would track the market. When you consider that kind of factor suddenly the fees of the ETF look higher though, so I suppose that doesn't fit the narrative.

There are, as I recall, a few posters on the Financial Wisdom forum (that I cited to above) who do this "basket of stocks" approach.

The issues with this approach, compared to a straight index, are (among others) that (i) you may have to incur a purchase and redemption fee each time you buy/sell a stock (otherwise known as a commission); and (ii) to fully "track the market," you would need to hold around at least 20-30 stocks in the Canadian market and many more stocks in other markets (like the US), which can be a bear to deal with (namely, to keep the asset allocations all in line with your desires).

If you can get a low-cost index fund, the expense ratio of the fund could, depending on your circumstances, be worth paying compared the headaches involved in the do-it-yourself index method.

[Slava]

Originally Posted by HockeyIlliterate

This simply isn't true.

At least in the US, you can buy Vanguard's Total Stock Market Index Fund (and many, many others) fee-free.

There is, of course, an operating expense charged by Vanguard that you incur once you own the fund (currently running at an 0.05% expense ratio for Admiral funds), but simply buying it does not incur a fee.

Right, but the MER is what I'm talking about. The stocks have no MER, whereas the index does.

[Slava]

Originally Posted by HockeyIlliterate

There are, as I recall, a few posters on the Financial Wisdom forum (that I cited to above) who do this "basket of stocks" approach.

The issues with this approach, compared to a straight index, are (among others) that (i) you may have to incur a purchase and redemption fee each time you buy/sell a stock (otherwise known as a commission); and (ii) to fully "track the market," you would need to hold around at least 20-30 stocks in the Canadian market and many more stocks in other markets (like the US), which can be a bear to deal with (namely, to keep the asset allocations all correct).

If you can get a low-cost index fund, the expense ratio of the fund could, depending on your circumstances, be worth paying compared the headaches involved in the do-it-yourself index method.

This explains why you would use an advisor! And the circle continues.

[Slava]

Originally Posted by HockeyIlliterate

Perhaps, but if an individual is getting ready to make a significant decision with regard to their investments, the prudent person would likely conduct research and (if needed) procure the services of a tax professional as a one-off event prior to making the decision.

Simply paying, on an ongoing basis, for advice that isn't needed doesn't make a great deal of sense to me.



One element of being a successful investor is simply staying the course and being boring. If someone can do that successfully, I don't see the point of paying someone else to tell them to ignore the noise, not do anything, and just stand there.




I like being average. In fact, being average in finance is, as someone else said*, pretty darn good.

* See here: http://www.forbes.com/sites/realspin...-stock-market/



I guess, but even if you did buy at the top, the index fund threw off dividends (which the "passive" investor would, presumably, reinvest back into the fund), so I'd be surprised if it took a "full six years" to have a portfolio balance equal to what it was in mid-2008 (or whatever cherry-picked year you'd like to use).



I'm not sure where you get that idea from. Many "passive" investors buy (and buy and buy and buy and buy and buy) and hold...

And many "passive" investors rebalance in order to maintain their desired asset allocation as well (either by buying what is underweight or selling what is overweight and buying what is underweight).



I'd like to see the comparison on that one.

All too often the mutual fund(s) used in the comparison aren't the same fund during the entire time span being reviewed, so that what you really are comparing is an "index" of mutual funds v. a single index*, or dividends/cap appreciation/gains are included in one comparison but not in the other, or the fund(s) being compared are really comparable to the index they are being compared against, or the comparison changes the composition of compared-index over time, or, well, you get the idea.

* Which is particularly grating, because, well, who really cares how great some mutual fund was from, say, 2004 to 2008? What you care about is which mutual fund will be the best one next year. And good luck figuring that one out, year after year after year after year after year from now until you stop investing.

I'm trying to avoid a mammoth post here. Its interesting that you say passive investors are seemingly completely passive though, when there are a number of decisions to be made there. Asset allocation being the first. You can't buy and buy and buy as you suggest without first deciding what to buy and how much. Do you want that currency exposure hedged? The in the next sentence you talk about re-balancing. On what basis exactly? So you cut the flowers to water the weeds or how do you make the decision that one sector/holding is overvalued and the others are undervalued? Clearly there is an active strategy of some kind here.

I'm not even going to address the mutual fund index (which I don't even know what that is or how its formulated). I do think its interesting that you are willing to forgo knowing what to buy in order to just buy the index, but not willing to forgo that thought for something actively managed though. Its seems incongruent to me.

[HockeyIlliterate]

Originally Posted by Slava

I'm trying to avoid a mammoth post here. Its interesting that you say passive investors are seemingly completely passive though, when there are a number of decisions to be made there. Asset allocation being the first.

Minor quibbles, but I tend to think that the first decision to be made in regards to investing is "How much do I want to invest"?

The next decision, in my mind, is "In what do I wish to invest"?

The third decision, to me, would then be, "How do I wish to allocate all of my investments"?

Originally Posted by Slava

You can't buy and buy and buy as you suggest without first deciding what to buy and how much.

True, but see above.

Originally Posted by Slava

Do you want that currency exposure hedged?

Granted, there may be a few issues that Canadian investors need to deal with that US investors don't, so currency exposure isn't something I give a great deal of thought to (nor, to be honest, that I need to).

Originally Posted by Slava

The in the next sentence you talk about re-balancing. On what basis exactly? So you cut the flowers to water the weeds or how do you make the decision that one sector/holding is overvalued and the others are undervalued?

I'll try to keep this simple:

Lets' say you have decided that you have $100K, want a 60/40 stock:bond allocation, and you plan on investing an additional $1K a week from here to eternity.

You wish to keep things as simple (and as cheap) as possible, so you simply buy two funds: Vanguard's Total Stock Market Index Fund and Vanguard's Total Bond Market Index Fund*. Thus, your initial investment is $60K in the Total Stock Fund, and $40K in the Total Bond Fund, and each week thereafter, you invest your $1K in a similar 60/40 split.

Now, on a regular basis (monthly, quarterly, semi-annually, annually, whatever), you review your holdings and determine which of the two, if either, are no longer in sync with the 60/40 allocation (say, due to a bull stock market, your stock/bond ratio is now 65/35), and you either (i) buy more, over time, of what is "under" allocated (perhaps even to the exclusion of buying any of what is "over" allocated) [so that you buy more of the bond fund and little to no of the stock fund]; or (ii) sell enough of what is "over," [the stock fund] and use the proceeds to immediately buy what is "under" [the bond fund] so that, by the next day, you will be back at your 60/40 allocation.

It is really that simple. There is no market timing involved, there is little to no thought involved, and there is no emotion involved. It is simply performing a mathematical calculation and implementing its results. I don't consider that to be an "active" strategy--it is simply maintaining your portfolio.

* In absolute terms, it isn't really an "index" fund, but it is pretty much as close as can be in the bond world.

Originally Posted by Slava

Clearly there is an active strategy of some kind here.

Could be a matter of semantics, but the "active strategy" I'm discussing is simply the implementation and following of one's plans (which some people, annoyingly in my view, refer to as their "investment policy statement").

Do some people need paid help to determine what their "active strategy" should be? I guess...but at the same time, no one is going to care about your money or your future as much as you will and, besides, where are all the customers' yachts**?

** Good book, by the way.

Originally Posted by Slava

I do think its interesting that you are willing to forgo knowing what to buy in order to just buy the index, but not willing to forgo that thought for something actively managed though. Its seems incongruent to me.

Honestly, I have no idea what you are saying.

[Slava]

I get the way you index. Its a strategy I use to some extent. The fact is though that there are a lot of decisions. Its great that you like the Vanguard funds, and I do as well. The thing is though, not all indexes or ETFs are created equally. Some have different mandates and different structures. My issue isn't that indexing is terrible, just that you can do better.

The ETF providers and industry in general have done a great job marketing though. They would have you believe that you should just buy the index and forget entirely about investing globally or that some companies are better values than others. Its a simple approach, and I guess that sells funds and gathers assets, but that doesn't mean it can't be improved upon at all.

[Enoch Root]

I respect your posts, Slava, so I have to say I am pretty surprised at this post.

Originally Posted by Slava

I completely disagree, and although I have an inherent bias, there are a few issues here. First, the idea of indexing is great and I use ETFs in my practice, but they only get you so far. It's true that they're cheap, and that's a good benefit of course. The fact is that
beating the market isn't the main point though. An index investor never beats the market, by definition, so to suggest that it's a better way to go because the other person can't beat it is just silly.

This completely misses the mark. The point is that active investing under-performs, therefore choosing an indexing strategy is superior, even though it doesn't beat the market either.

The purely passive advocates still make a lot of active decisions as well. Asset allocation being one major component. All ETFs are not created equal either. There are still significant decisions to be made by the investor, and just using a robo-advisor (Ala wealthfront) is a pure one size fits all 'solution' to a problem that is nowhere near one size fits all.

Asset allocation is not an 'active' decision, unless it is being done tactically or dynamically. Asset allocation should be a function of goal and risk-tolerance matching, not a function of the markets. Changes occur obviously, but he important question is what is prompting those changes?

Also, to dismiss passive investing as 'one size fits all' is disingenuous - our passive strategies are completely custom-tailored to our clients' individual situations.

Then we look at real world experience. It's cute to cherry pick the good news index stories, but they aren't all like that. The TSX only hit its mid 2008 level this year. That's six full years of being under water if you bought at the top. And of course a passive investor would buy at the top, because they're not making any active calls, right? Meanwhile most mutual funds (which are not a fair comparison, but the ETFs industry loves to point to them anyway) regained their value a fee years ago.

These points have been addressed by others, but as a professional advisor, you actually used the TSX excluding dividend return? Including dividends, the XIC was above it's 2008 peak in March, 2011.

I have said it before on this board, but pure indexing just leaves a lot of money on the table in my opinion. There are better ways to structure things then just throwing your hands in the air and doing the bare minimum.

You have said it before, but that doesn't make you right.

Passive investing does not mean throwing your hands in the air and doing the bare minimum.

Done properly, it means focusing efforts on things that can be achieved, such as controlling trading costs (including inside funds, not just referring to brokerage fees); proper rebalancing; minimizing tax drag; focusing risk management on things that actually improve the risk-adjusted return; etc

The crux of the issue boils down to one simple thing: the active manager focuses their efforts on trying to beat the market, which is a negative-alpha proposition. The passive manager accepts that they are unlikely to be continually successful at that game and focuses their efforts on things that can actually provide value.

[HockeyIlliterate]

Originally Posted by Slava

The thing is though, not all indexes or ETFs are created equally.

Well of course. I'm not sure that a reasonably well-educated person needs to pay someone to help them figure out what index is better than another, or which one(s) truly capture the indexed market, though.

Originally Posted by Slava

My issue isn't that indexing is terrible, just that you can do better.

Can you do better in any one particular year than a true, broad-market, low-cost index fund? Maybe.

Can you do better each and every year than a true, broad-market, low-cost index fund? I really doubt it.

Originally Posted by Slava

They would have you believe that you should just buy the index and forget entirely about investing globally . . . .

I don't get that impression at all, and many companies (Vanguard, Fidelity, etc) expressly acknowledge that part of having a truly diversified portfolio means that you are diversified not only amongst asset types, but also amongst geographic regions.

Originally Posted by Slava

. . .or that some companies are better values than others.

I guess it depends what you mean by "companies". If you are referring to "index fund providers," then, yes, some clearly are better values than others. If you are referring to the companies that make up the index itself, then I think that sorta defeats the point of the index itself, doesn't it?

Regardless, I think that we agree more than we disagree.

[Enoch Root]

Originally Posted by HockeyIlliterate

Perhaps, but if an individual is getting ready to make a significant decision with regard to their investments, the prudent person would likely conduct research and (if needed) procure the services of a tax professional as a one-off event prior to making the decision.

Simply paying, on an ongoing basis, for advice that isn't needed doesn't make a great deal of sense to me.

Often, by the time people realize they need tax advice, it is already too late to do much about it. Tax planning is what a good advisor brings to the table.

The other issues here are tax optimization, and minimizing tax drag on the portfolio. You may be well versed enough to understand the tax implications of how a given mutual fund is managed, or how RTFs compare, but I would venture to say that more than 99% of all investors (and the majority of advisors as well) have little to no incite into the structural activity of various ETFs and how that impacts you as an investor.

One element of being a successful investor is simply staying the course and being boring. If someone can do that successfully, I don't see the point of paying someone else to tell them to ignore the noise, not do anything, and just stand there.

While there is some truth in this point, there are still many ways that an advisor can improve the risk-adjusted return of your portfolio, the tax drag, the best techniques for rebalancing (all rebalancing is not created equal), etc

There are some advisors who actually do provide value.

I like being average. In fact, being average in finance is, as someone else said*, pretty darn good.

* See here: http://www.forbes.com/sites/realspin...-stock-market/

Well then you're probably on the right track (which will put you well ahead of most).

[Enoch Root]

Geographic diversification is an interesting topic in itself...

Originally Posted by Slava

I get the way you index. Its a strategy I use to some extent. The fact is though that there are a lot of decisions. Its great that you like the Vanguard funds, and I do as well. The thing is though, not all indexes or ETFs are created equally. Some have different mandates and different structures. My issue isn't that indexing is terrible, just that you can do better.

The ETF providers and industry in general have done a great job marketing though. They would have you believe that you should just buy the index and forget entirely about investing globally or that some companies are better values than others. Its a simple approach, and I guess that sells funds and gathers assets, but that doesn't mean it can't be improved upon at all.

What? How does passive investing equate to not investing globally?

Originally Posted by HockeyIlliterate

I don't get that impression at all, and many companies (Vanguard, Fidelity, etc) expressly acknowledge that part of having a truly diversified portfolio means that you are diversified not only amongst asset types, but also amongst geographic regions.

Absolutely.

But are you aware that over the past 50 years, due to the general acceptance of diversification, as well as the ability provided from computers to be able to invest globally, that the actual benefit of global diversification - with respect to major indexes - has all but vanished?

Prior to the 60s, and the advent of proper asset allocation, the correlation between the major indexes of various countries and geographic regions was quite low - in the range of .5 or .6, meaning that there was a tremendous benefit to diversifying geographically. Those same correlations are now more like .95 (in other words the benefit is almost non-existent.

All is not lost however, as there are still very effective ways to diversify globally (but not via the major indexes).

[Slava]

Originally Posted by Enoch Root

I respect your posts, Slava, so I have to say I am pretty surprised at this post.
This completely misses the mark. The point is that active investing under-performs, therefore choosing an indexing strategy is superior, even though it doesn't beat the market either.

Asset allocation is not an 'active' decision, unless it is being done tactically or dynamically. Asset allocation should be a function of goal and risk-tolerance matching, not a function of the markets. Changes occur obviously, but he important question is what is prompting those changes?

Also, to dismiss passive investing as 'one size fits all' is disingenuous - our passive strategies are completely custom-tailored to our clients' individual situations.

These points have been addressed by others, but as a professional advisor, you actually used the TSX excluding dividend return? Including dividends, the XIC was above it's 2008 peak in March, 2011.

You have said it before, but that doesn't make you right.

Passive investing does not mean throwing your hands in the air and doing the bare minimum.

Done properly, it means focusing efforts on things that can be achieved, such as controlling trading costs (including inside funds, not just referring to brokerage fees); proper rebalancing; minimizing tax drag; focusing risk management on things that actually improve the risk-adjusted return; etc

The crux of the issue boils down to one simple thing: the active manager focuses their efforts on trying to beat the market, which is a negative-alpha proposition. The passive manager accepts that they are unlikely to be continually successful at that game and focuses their efforts on things that can actually provide value.

Asset allocation is much more of an active decision than what you're alluding to though. How much do you keep in Canada, how much to the US and Global? I think that is a definitive decision and one that changes through the years for some investors depending on the macro trends?

The point I was making about passive strategies being a one-size fits all approach is specifically regarding the robo-advisors. You take the risk tolerance questionnaire and they allot your funds to a series of indexes. Its absolutely one-size fits all. Granted you pay like 0.25% for that, so maybe that is worthwhile.

A lot of those things that passive mandates do have been done for decades by active managers. I'm not sure how buying a passive index gives you a better risk adjusted return than the S&P 500, but I'll let you have that one.

Unfortunately buying the whole index has its drawbacks as well. Lets use some complete hindsight here and look at the TSX. In the late '90s if you bought the index you were getting very little exposure to oil because this was not a large component of the index. Move ahead a few years and clearly this was a place you wanted to be invested in. Then when you were buying the index in 2007-2008 you were investing a lot into oil. It was at its peak and made up more of the index. I think we all know what happened next. Was that entirely unforeseen? Could no one have looked in the early 2000s even and suggested the a place to add some weighting was to energy? Would no one look in 2008 and suggest that oil had gained a huge amount and maybe the weight should be reduced? Thats just broad based from an index perspective. Company specific mispricing takes place regularly. You have to look for those opportunities, and its more work than just buying the index, but they clearly exist.