Saturday, 7 July 2018

My Savings Policy Rationale for Friends

 There is a total market of capital assets to invest in. That market has an annual return (which, over the long term, has been a surprisingly stable proportion of gross world product). So if you are invested in proportion to that total market  you will get whatever that return is.

Passive investing (ideally) is simply investing in proportion to the total market. Active investing is being invested in some other way. Usually active investing is done in an attempt to do better than the total market return by buying the things that are going to go up and selling the ones that are going to go down. But people can be active investors without realising it, for example, investing in a single country or region or even merely out of proportion to the world capital market, is a kind of active investment, since by doing so you are in effect hoping that the bits you are investing in are going to do better than the bits you aren’t invested in. Most people are currently active in both ways since they are invested in a managed fund rather than a passive index and are entirely invested in their own country's stock exchange.