There is an overwhelming body of evidence demonstrating that active management is a loser’s game when it comes to both stock and bond investing. The evidence led author Charles Ellis to call active management just that—a loser’s game—because while it’s possible to win, the odds of doing so are so poor that it isn’t prudent to try.
The evidence applies even to investors who don’t pay taxes, such as endowments, and investors in tax-advantaged accounts, such as an IRA or 401(k). The odds of winning become dramatically worse, however, in the presence of taxes because taxes are often the largest expense incurred by taxable investors in actively managed funds.
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