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Another Case for Passive Investing

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Everyday I see reminders of why investors should passively invest their wealth.

Today it comes from this Bloomberg story, Economists Cite Seasonal Variations for Jobs Miss [4]The key takeway for me in the article is:

Not a single economist among 85 surveyed by Bloomberg News correctly forecast the 18,000 increase in payrolls in June reported by the Labor Department.

And it was not like any of them were even close.

Estimates ranged from a low of 60,000 to a high of 175,000. The median was 105,000 — almost six times the actual number.

As an aside, while the “actual” number was 18,000, I expect that this will be revised downward over the next month or two as better data is compiled. No, I am not forecasting. However, some of the assumptions that make up the 18,000 figure are a little suspect. So the median estimate of 105,000 may be a lot higher percentage-wise than reality.

This is yet another example of how difficult it is for experts to get it right.

Lest you think I cherry picked this as an outlier, it is in fact quite normal.

It’s not unusual for payroll figures to fall outside of the range of economists’ forecasts. The same thing happened last month, as well as in October, November and December of last year.

If professional economists are so far off, how can average investors do better? They cannot.

As such, I suggest most investors stick to a passive investment strategy [5].

Slowly build up positions in low-cost index funds with your wealth well diversified throughout and within various asset classes.

Your performance should not suffer versus the active managers who rely on forward looking information such as economists estimates. In fact, it may be better [6].

Plus it will save you a lot of time and energy in conducting research (that may be wrong) and you will sleep easier.