http://sensibleinvesting.tv -- the independent voice of passive investing A remarkable 54-minute film featuring some of the world's top economists and academics and demonstrating: * how the claims of active fund managers to be able to beat the market are largely a myth * how costs are the biggest drag on performance - and why active costs more * how passive investing offers the best experience for the vast majority of investors * the benefits of a diversified portfolio in guaranteeing consistent returns * why passive investing is better for your health * why active investing has held sway for so many years.... * ... but why things may be changing * and why passive is the rational, mathematically proven route to investing success. Investing for the future... It's an issue none of can afford to ignore. No one's job is safe these days... How would you cope if you lost yours? We're all living longer too... So are you saving enough to fund 25 years or more of retirement? Can you really afford to pay for your children or grandchildren to go to university - or help them onto the property ladder? And what about all those holidays you promised yourself? We entrust the vast bulk of our investments to fund managers. Here in the UK, according to Her Majesty's Treasury, the industry has more than four TRILLION pounds of investors' money under management. Fund managers invest people's savings wherever they see fit - mainly in equities, or shares in listed companies. They claim to be experts at making our making grow, using their expert knowledge to pick the shares that will outperform the market. But all too often the returns they produce are considerably lower than the average return of a benchmark index like the FTSE 100 - or the S&P 500 in the States. For veteran investment guru John Bogle, the problem is simple. Fund managers just aren't as smart as they like to think they are. As it means trading against the view of numerous market participants with superior information, buying or selling a security is effectively just a bet. So, whilst your fund manager might lead you to believe it's his knowledge or intelligence that enables you to beat the market, he's really no better than a gambler. So, you might be lucky enough to choose the right fund manager. But you could just as easily pick the wrong one. According to the financial services company Bestinvest, there are currently nearly £10 billion of UK investors' money languishing in what it calls dog funds - in other words, funds which have underperperformed their benchmark index for at least three consecutive years. Ultimately, of course, fund managers are businesses. They exist to make money for themselves. They want our business - even if it means persuading us to invest in a fund which they themselves wouldn't want to put their own money in. It's now time to look at what it actually costs us to invest. Fund managers are, of course, businesses. And, like all business, they have overheads. Running a big fund management company doesn't come cheap - esepcially when top managers earn around £2 million a year, including bonuses. And remember, it's you, the customer, who picks up the tab. Ultimately, though, fund managers need to make a profit. In fact they'e making around £10 billion from us every year - and that's regardless of whether or not they manage to produce a profit for us. Part of the challenge is working out exactly what we are being charged. Investors typically use something called the annual Total Expense Ratio, or TER, to compare the cost of investing in different funds. But, the TER excludes dealing commission, stamp duty and other turnover costs that can add considerably to the expense of investing over time. So, apart from those hidden charges, what else are we having to pay? More importantly, what sort of impact do charges have on the value of our investments? And the bad news doesn't stop there. Despite a marked increase in competition, management charges in the UK have been steadily rising over the last ten years. There are some encouraging signs for consumers. The FSA's Retail Distribution Review will require fund managers to be fairer and more transparent when it comes to charges. In the meantime, investors should be on their guard. For more videos like this one, visit http://sensibleinvesting.tv

https://sensibleinvesting.tv In this video blog, Weston Wellington from Dimensional Fund Advisors explains how study after study has shown there are no asset classes in which an active fund manager's skill can add significant value. The main problem, he says, is there are simply far too many active managers competing with one another. Transcript: Hello again. If you’re a regular viewer of Sensible Investing, you’ll know we don’t recommend using actively managed funds. Some say we overstate our case, that we somehow have it in for active managers. In fact neither of those is true. In a recent interview he gave us, Weston Wellington from Dimensional Fund Advisors explained how there’s no contradiction in having the utmost respect for active managers, while at the same time advising clients to avoid them. Weston Wellington says: “It is very, very difficult to distinguish luck from skill. I’ll put another way, it’s very easy to persuade ourselves that we can identify great performing stocks or great performing money managers. If it were the case that it were so easy to identity terrific money managers we ought to be able to do it. But in study after study after study we just don’t find that evidence. I think we ought to emphasise when we are making these statements, this is not a suggestion that active money managers are someway incompetent or greedy or they are looking at the wrong things. If anything, it’s a vote of confidence, saying there were so many talented clever, hardworking money mangers out there, all flipping through the thousands pages of corporate reports and information, all that competition serves to drive prices quickly enough to their fair value that it eliminates the easy opportunities for anybody, smart or otherwise to gain an advantage.” We often hear that some markets are less efficient than others, that there are particular asset classes in which a fund manager’s expertise really can add value. So what does Weston Wellington make of that? “I would never argue that there are no situations where clever active management might be able to add some value. I just haven't found an asset class yet. When I hear that argument that seems to apply. The ones we hear most often are small company stocks that are somehow less well researched and therefore they have greater opportunity for active managers, or emerging markets. Now right away you run into two big problems. Number one, you still have a market place that consists of all the small cap securities or all the emerging market securities and you have the universe of investors holding theses securities. You still have the zero sum game problem. And from an empirical standpoint, when we go looking for evidence among actively managed emerging market or actively managed small company strategies we find no evidence what so ever that these managers have any greater ability in this market place. If anything, the data shows that they’re performing even worse.” Ultimately, of course, we need active fund managers to set prices. But that certainly doesn’t mean that every investor needs to use them. Weston Wellington says: “To the extent active money managers study companies, access whether projects are useful or not useful, reflect those assessments in security prices, they’re performing a social benefit. The real question is, how many active managers do we need to keep markets efficient to keep prices fair? All the evidence we have from these academic studies of manager performance suggests we have way more mangers than we need to keep the markets efficient.” That’s about all for now. Just time to remind investment professionals who share our evidence-based investing philosophy that we’re about to start producing regular educational content for advisers. If you’d like to subscribe, please contact Richard Wood. His email address is richard@sensibleinvesting.tv. That’s richard@sensibleinvesting.tv. Until next time, thanks for watching and goodbye. https://sensibleinvesting.tv

Be wary when you hear a financial services industry professional claim to have beaten the market. Very often, there is a lot more to the story.

For more than 30 years, Dimensional has been putting financial science to work for investors by translating compelling research into real-world investment solutions.