Updated: October 21, 2016
The Wall Street Journal reports – yet again – that stock picking is dead. We’re being told that passive index funds outperform actively managed funds over the long term, and smart investors should choose passive because actively beating the market isn’t possible.
On one level, this is true. If your plan is just to buy and hold for 30 years or more, and if you don’t need any income right now, you are probably better off with a low-cost index fund than a higher-cost actively managed fund. But what if need income NOW? Then the “wisdom” of passive investing isn’t so great, and you need to consider alternatives.
Let’s look at two passive S&P 500 funds, the SPDR S&P 500 ETF (SPY) and Vanguard’s alternative, the …