In response to a story published by the Washingtonian about the White House possibly seeking his replacement, White House Press Secretary Sean Spicer tweeted, “Getting government updates from @Washingtonian is like getting stock tips from @USWeekly.”
US Weekly responded. But its response wasn’t as snarky as it could’ve been. In fact, it was arguably sound investment advice.
“Thanks, Spicey!” the US Weekly Twitter account exclaimed. “@USWeekly does not recommend investing in individual stocks. Stick with a broad mix of low-cost index funds.”
— Us Weekly (@usweekly) February 13, 2017
US Weekly is actually chiming in on one of the hottest debates in all of investing: active versus passive investing.
In a nutshell, active investing involves picking stocks in an effort to beat stock market averages like the S&P 500 (^GSPC). Passive investing is about tracking the market averages. Active investing comes with higher fees than passive investing. And even worse, active investment strategies have a long and consistent history of underperforming passive investment strategies.
Even billionaire Warren Buffett, who’s famous for his money-making stock picks, prescribes low-cost index funds to average investors.
With the underperformance of active managers becoming increasingly publicized, investors have been moving their money aggressively into passively-managed, low-cost index funds like those offered by and made famous by Jack Bogle’s Vanguard Group. In fact, a Wall Street Journal report revealed that Vanguard’s assets under management topped $4 trillion for the first time ever in January.
For what it’s worth, actively managed large cap funds have actually been beating their benchmarks so far this year. Then again, it’s only February.
Sam Ro is managing editor at Yahoo Finance.