Expert Advice on Active Versus Index Investing

Expert Advice on Active Versus Index Investing

You’re likely feeling more and more familiar with the debate about investing using actively managed mutual funds versus using indexes in investing strategies. The 2017 tax season is a perfect time of year to revisit this topic because in addition to comparing pre-tax performance, many are looking for tax advice on how we can save more in taxes during the 2017 tax season, turning more focus to after-tax returns.

So let’s jump in!

Wouldn’t it be nice if there was a scorecard available to compare active mutual fund performance to that of indexes? I have good news: the SPIVA (S&P Indices Versus Active) Scorecard helps to do just that. It is a bi-annual report that sheds light on realities that large majority of funds fail to outperform their stated benchmark, what many refer to as failing to “beat the market”. The SPIVA Scorecard for the US is 27 pages long so as you can imagine, it does a very thorough job slicing up the data based on various sizes and strategies. No need to go through all that data here but I’ll simply reference one point, why it matters, then connect to some 2017 tax season tips.

  • For the one year period ending June 30, 2016 (year-end data not yet available): 84.62% of large-cap managers underperformed the S&P 500 (S&P Down Jones Indices, 2016). One may think that the small and mid-cap space mangers might have fared better. A look through the SPIVA U.S. Scorecard would show just the opposite—an even greater percentage failed to beat the respective S&P benchmarks.

Why should you care during this busy 2017 tax season about the active versus passive investing strategy? Tax season is a popular time to take a step back and see how your decisions throughout the year are affecting your finances. As we aim to get the most out of life while minimizing the tax bite, the synergies become clear that investing in indexes (generally lower costs and more tax efficient) fit perfectly into our tax season evaluation.

Our Indiana fiduciary adviser firm is dedicated to providing transparency, clarity and confidence to our clients so they can lead their best lives and leave powerful legacies. We’d be honored and privileged to start a conversation today to provide the same to you.

For more 2017 tax season tips or financial planning resources, please feel free to contact me directly at 812-602-6308 or via email at Alternatively you may just wish to visit our website at

Date Published: March 15, 2017

Authored By: Bethany Muensterman, CFA

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The information in this material is only as current as the date indicated, and may be superseded by subsequent market events or for other reasons. While all information prepared in this document is believed to be accurate, any statements of opinion constitute only current opinions of Payne Wealth Partners, Inc., which are subject to change and which Payne Wealth Partners, Inc. does not undertake to update. Accordingly, you should not put undue reliance on these statements. The information does not attempt to examine all the facts and circumstances that may be relevant to an individual’s financial needs. Payne Wealth Partners, Inc. is not soliciting any action based on these statements.

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