Mutual Funds: Passive vs Active

Senior Wealth Advisor Shawn Scott joins Sam to discuss the best ways to choose an investment option for your needs. Some of the topics we discuss include fear-based investing, discipline, and understanding what you know and don't know. Additionally, we cover two problematic long-term investment strategies that are very common.

Shawn speaks about the importance of diversification, maintaining a general strategy, and seeking help when needed. We also tackle tips to remain invested for the long haul. The conversation concludes with Shawn sharing a single piece of advice that he wishes he had received when he was younger.

Episode Highlights:

[02:11] How do consumers navigate the many investment options available?

[03:46] Media pushes us towards investment options based on fear. This is why discipline and understanding what you know and don't know is so important.

[04:29] Most options are more sophisticated than most of us need. Shawn talks about avoiding the overthinking trap.

[05:14] Media's role used to be to inform us, but now they are about generating revenue. People are also more likely to remember negative things as opposed to positive things. Media intentionally creates fear.

[07:12] Shawn talks about making decisions based on fear generated by media outlets.

[08:45] The pitfalls of creating an investment structure based on what happened in the past. This strategy isn't based on future goals, it's based on some type of historical information.

[10:18] People tend to react to fear. Managing fear and grief is one of the most important things an investor can do.

[12:17] Historically the average stock market return is a little over 10%.

[14:45] Self-managed investment options.

[16:43] Index funds are supposed to track a specific index. ETFs track the market, but they aren't a perfect representation.

[18:43] The S&P 500 are the 500 largest publicly traded companies in the US.

[19:42] If you are going to self-manage your investments, you really need to understand what you're going to own, including what the indexes actually track and what the funds consist of.

[20:24] A passive mutual fund tracks an index. Active funds have a fund manager and a group of analysts to make decisions.

[22:07] Robo advisor. This was introduced in 2008. It's a system that uses an algorithm to buy and diversify a basket of investments. It's mostly ETFs and mutual funds based on age and goals.

[24:18] All firms aren't the same. It's important to know what services you need before hiring. How do you know what you actually need?

[26:09] Real estate investing. Investing solely in anything is a terrible idea. You won't have diversification.

[30:37] The best thing anyone can do as a starting point is to have a conversation with a professional.

[33:37] Almost all people could benefit from hiring a firm.

[36:30] Shawn's advice is to understand the true value of compound interest and investing overtime.

Certified Financial Planner Board of Standards, Inc. (CFP Board) owns the CFP® certification mark, the CERTIFIED FINANCIAL PLANNER™ certification mark, and the CFP® certification mark (with plaque design) logo in the United States, which it authorizes use of by individuals who successfully complete CFP Board's initial and ongoing certification requirements.

Resources & Links Related to this Episode

• Wealthquest Get Started

• Living a Rich Life: The No-Regrets Guide to Building and Spending Wealth

• Shawn M. Scott