If you were to ask one of the most highly successful investment officers where to invest, what would you expect the answer to be. I would expect to hear about a hot stock or a long-term high flyer. But I would be wrong. David Swensen who runs Yale University’s $19.4 Billion endowment says, “Either be 100 percent active or 100 percent passive in your investing.”
“Unless an investor has access to “incredibly high- qualified professionals,” they “should be 100 percent passive — that includes almost all individual investors and most institutional investors,” he said.
He lets the secret out of the bag when he says, “Most active mutual funds are more interested in collecting fees than in boosting returns for investors”, Swensen said at the conference, which highlighted Bogle’s work in building up index investing as a low-cost alternative to traditional mutual funds.
Swensen must know a thing or two because he has done very well for Yale University by achieving a return of more than 14 percent annually over the past 20 years.
Swensen goes on to say that high quality hedge funds exposure is what produces some of his great returns which are independent of the market. When active mutual funds charge fees in the 2 percent range, that is sometimes 20 percent of a funds growth. Such outrageous fees are taken even if the fund only performs poorly. Swensen says the average investor should use index funds which mimic the market and have extremely low expense. Anything else and you are feeding the mutual fund companies out of your pocket.
I tend to agree with David Swensen who has earned 22 percent YTD for Yale University.