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January 3, 2011

Active or Passive Investing?

Brent Hunsberger of “The Oregonian” published an interview with Burton G. Malkiel December 25th.  Mr Malkiel, a Princeton University economist, wrote “A Random Walk Down Wall Street” 37 years ago.  He believes that some active funds do outperform other funds.  His concern is that you never know ahead of time which ones will outperform.  Although he believes in indexing (passive investment)  he does not think the entire portfolio has to be indexed.  A portfolio that is partially active will have much lower risk if the core portfolio is indexed.
This should sound familiar to anyone who has discussed portfolio construction with me.  By following this approach costs are also reduced.  Finding active funds with lower expenses is important in picking funds that out perform other funds in the same investment category.  Indexing and picking funds with relatively lower costs are essential in constructing a portfolio to meet the unique goals of an investor.    

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