Fisher Investments’ founder, Executive Chairman and Co-Chief Investment Officer Ken Fisher explains why passive investing—for example, buying a low cost index fund and holding it—isn’t as easy as many believe. Ken believes a passive approach can be effective, but notes most investors fall prey to their own emotions amid developing market trends and are unable to remain passive in the long-term.

Ken thinks if passive investing was easy, most investors wouldn’t lag the market. Ken cites a famous, annual behavioral study by DALBAR Inc.,* which evaluates fund flows for a passive S&P 500 instrument over a 20-year period. The study finds that investors try and time the market–buying and selling at suboptimal times, causing them to underperform the S&P 500 over that time. While Ken suggests several strategies to remain passive effectively, he suggests that knowing yourself and your behavioral tendencies is key to being a successful long-term investor, regardless of what you invest in.

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*Source: 2010 Qualitative Analysis of Investor Behavior, Advisor Edition, DALBAR, Inc.

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Investing in securities involves a risk of loss. Past performance is never a guarantee of future returns. Investing in foreign stock markets involves additional risks, such as the risk of currency fluctuations. The foregoing constitutes the general views of Fisher Investments and should not be regarded as personalized investment advice. Nothing herein is intended to be a recommendation. The opinions expressed are subject to change without notice.

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