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Index Fund or Money Manger?

There has been a lot written about whether to invest in index funds or to hire a professional money manager.

The Freemoney Finance Blog, which is not written by a financial advisor, expresses the typical non-investment advisor sentiment that investing in index funds is better than hiring a professional money manager.

CASTrader Blog recently posted an excellent article that provides a more objective look at the issues (the only point I would add to this article is that the Fama and French research is based on a very particular period of time — which, makes it appear that the researchers picked a time period that would produce the result that they were looking for). The CASTrader Blog concludes that index fund investing is good, but maybe it is not for everyone.

Another opinion that isn’t expressed by the prior blogs is that the “index-fund versus money manager” debate is no longer applicable (or advisable) in today’s market.

Few would doubt that the US economy — which still has some impact on every other market in the world — is now in a unique position. Major advances in technology have produced efficiencies (and profits) and those advances have been added into the current market, the world is seeing many smaller technology related efficiencies and fewer large scale technology revolutions (like the business efficiencies that came about when PCs and operating systems took the business world by storm), the US and other developed countries are facing the twin evils of rising debt and aging populations, foreign countries are consuming more of the world’s resources, and foreign competition continues to increase.

These and other factors tend to indicate that we are in and should expect turbulent times in the future. In the past this might have sounded like the typical doom’s day views of a contrarian, but times they are a changing.

So an alternative to the “index fund versus money manager debate” might be, “yes, hiring an investment manager in the past or investing in index funds may have been a close call, but a good (lucky?) investment manager should be able to outpace bulky one-size-fits-all index funds given the unique opportunities presented by our turbulent markets.”

What do you think?

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