Spreadsheet to compare passive vs active managed accounts?

[chowdan]

Hey guys,

I am curious to know if anyone has created a spreadsheet that compares the difference between an Active Managed account vs a Passive account?

I have had a RIA for about 5 years. Overall was happy with him and lacked the time/effort to switch to a total market passive account(index funds) until recently. I've known the benefit of index funds and what not, but markets were doing great, my RIA was doing great. I decided it was time to take the money in my own hands and do it myself. I pulled funds, figured the market would take a breather, which it did and i slowly poured it all into my own designed portfolio of total market funds and total market bonds.

Now that I am doing my own, I've had discussions with people how they are with stockbrokers or with RIA's and fully believe that they are completely worth it. I think RIA's have some benefit while brokers do not yield a benefit(most of the time).

I was thinking about how this one discussion I had with my brother-in-law, how he believes if a broker can get you an additional 1-2%/year, makes it totally worth it. Due to this 2 hour discussion(and his lack of knowledge of index funds and how they operate), I thought it'd be interesting to have a spreadsheet that would compare a on year by year, quarter to quarter, month to month performance basis of an actively managed account vs a passive account.

I'm not sure if anyone has created a comparison spreadsheet of any sort, but if you have, or know of one that does something similar, I'd love to take a look at it.

If it hasn't been done, would this be beneficial to you in anyway? I'm curious to see how my current portfolio would have performed vs how may active portfolio performed over the last 5 years, or how my portfolio performed vs say my brother-in-laws portfolio performs.

[Andy R]

I was thinking about how this one discussion I had with my brother-in-law, how he believes if a broker can get you an additional 1-2%/year

Just send him to SPIVA.

[MustacheAndaHalf]

RIA won't win with hard numbers - you need to include behavioral benefits like not selling during a down market.  And if you switched into index funds in the past 4 months, then sure you're wondering what happened - but your former RIA couldn't have avoided the market downturn either.  If an RIA stops your bad behavior, that's a trade off.  But once you understand passive investing, an RIA becomes another expense.

To reinforce what Andy said, the S&P 500 beats ~80% of active funds over 3-5 years.  And beats ~90% of them over 10-15 years.  And it's different active funds: the ones beating the S&P 500 for 3 years have very little chance of showing up in the other time frames (5, 10 or 15 years).  So not only do most active funds lose against the S&P 500, but it's a different active fund at different times.
https://us.spindices.com/documents/spiva/spiva-us-mid-year-2018.pdf

Also, SPIVA's methods are quite good: they account for survivorship bias (they keep tracking the active funds that close - almost always because they have lost money), which many studies don't handle carefully enough.

[chasesfish]

I believe *the good* financial advisers earn their keep through helping control someone's emotional reactions to a down market.   Markets go up more often than they go down, but they go down a LOT faster than they go up.   This applies to stocks, real estate, commodities, ect.   The best financial advisers are as much therapists about money as they are technical geniuses, which boggles my mind because mental health professionals are predominately women while financial advisers are predominately men (go figure?).

This was a brilliant piece written by a financial adviser about this when the last bear market started. 

Many advisers sell on the basis of return and trying to beat the market by 1-2%.  The best should base their success or failure on helping clients achieve their goals.