Q: Hi Peter, thanks to you and your team for your great service. For a young person (or anyone for that matter), what are your thoughts on regular contributions to the S&P vs picking individual stocks ? It seems a simple but winning approach as it buys more of the good compalnies each 1/4 and kicks out the poor performers. It lacks energy etc but is this an issue ? Is there any data on how many mgrs or individuals actually beat the S&P. Are there equivilant and/or complimentary indexes you would pair with the S&P ? Looking to spend less time fussing over individual names. Thank you.
5i Research Answer:
A passive approach works better with time. Many managers can beat the market over one year, less over five, some over ten. But after 15 years a passive index approach beats 95% of managers. It is not that managers are dumb, but the fee drag is just too high. But also, indices have low turnover, and many managers trade too much (to justify their fees). For a young investor we think regularly buying the S&P through a low cost ETF would be a great approach. We think VIU (international ex North America) would be a good complement.