Step 6: Style Drifters
48.57% remained style consistent over the five-year period. Investors should carefully review Morningstar data to determine if a fund has a history of adhering to its stated investment style. Because passively managed index funds adhere to their styles, they provide investors with consistent risk exposure and the assurance their funds will stay true to their purpose.
Bottom Line Wise investors avoid the pitfalls of style drift in two ways. First, they resist the temptation to overweight or underweight asset classes that may be touted or spurned based on speculation or hype from so-called experts or the financial media at any particular time. Second, they steer clear of actively managed funds because these are also notorious for style inconsistency in an attempt to beat the market. Instead, wise investors avoid the perils of style drift by holding a consistent allocation of index funds, permitting them the full benefits of a risk appropriate investment in the global markets.
Published on Jun 1, 2015
This book reveals the potential land mines and pitfalls of active investing and educates readers on the benefits of passive investing with i...