Investing: What does passive investing mean?

In this brand-new series, we discuss the debate investors are battling with between passive investing vs active management. Which one is better? How can you tell?

In this first episode, we define what passive investing means.  We break down some of the most well-established definitions and discuss how confusing all the definitions truly are. They say a lot and yet nothing at the same.

What about the differences between investing for growth vs value? Again, another confusing debate that leaves you as the investor with more questions than answers.  

This is a loaded series with lots of talking points and data to back it up! Stick with us! 

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Thanks to our sponsor, S.E.E.D. Planning Group! S.E.E.D. is a fee-only financial planning firm with a fiduciary obligation to put your best interest first. Schedule your free discovery meeting at www.seedpg.com

Ditch the Suits is produced by NQR Media. NQR also produces the One Big Thing Podcast with Steve Campbell.

You can watch all episodes, as well as other great content produced by NQR Media through their YouTube channel at https://youtube.com/@NQRMedia

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Transcript

Speaker 1: 0:08

Welcome to Ditch the Suites, a movement awakening and opportunity for you to start getting more from your money in life. I'm Steve Campbell. With my amazing co-host, Travis Moss. We're going to share industry insights nobody wants you to know about, so buckle up and enjoy the episode. Well, welcome back to Ditch the Suites, Steve Campbell, here with Travis Moss.

Speaker 1: 0:30

Hopefully you guys are not only listening to this, but watching along with us on YouTube at our NQR media. We like to be kind of lively and bring this to life. So if you've never been over to NQR media on YouTube, check it out. But if you have been with Ditch the Suites for a while, we normally do two to three episodes, taking a high level series and breaking it down into piecemeal episodes that you can actually make sense of what we're talking about. But one of the things that we wanted to do is kind of lay the groundwork for kind of where we're going to be going, because this could be a multiple series episode, Because we want to break down.

Speaker 1: 1:01

People are going online and they're trying to figure out how should I actually invest in? There's a whole lot of stuff that's out there, so we want to help make sense of maybe what's noise, what's truth and kind of what would be a roadmap as to how we see things and give you some fresh perspective. So, Travis, people are going online how to invest. Where are we going with this?

Speaker 2: 1:23

Yeah, when we start, my idea was to take on index investing versus active management. So passive investing, active management, which I think is a war that's been waging for a long time. It's one of those similar arguments that they have between well, our commission's the best, or paying fees the best right, like paying somebody for advice or paying somebody to sell me something, so it's passive investing that's really inexpensive. Is that the best? Or is paying somebody to actually build an investment plan for me who's going to get me better results? And those types of things. And we've touched on some of this stuff before, but we've never really dove in and given the people the resources to be able to complete the thought. Let's say, you could take it from me all you want, but I think for most people, you need to go out and you need to see where the information is and you need to see it for yourself. So, for those that are really convicted, when you Google something, you go out there and you say, okay, how should I invest in this? Passive investing is the greatest. And you say, okay, well, that must be it. Then and you find 59 million posts on Google about passive investing and all that kind of stuff. I kind of think it seems like that's the way that you should go. And then they tell you well, here's the studies and here's the justification for that. And I've wanted to talk about this for a long time and I know it's a controversial topic because sometimes when you're presented with information that you don't want to see, that challenges some of your convictions, it can really tick you off. It can really make you frustrated, really make you mad, and you know I'm sensitive. I want to make sure that we're helping people and it's hard to help people if we're turning them right off. But there's more to the story of index versus passive investing from an industry perspective that I think people need to know about.

Speaker 2: 3:18

And I started to build out the material for this series and the further I got into it, the more it was like an open-ended novel. I mean, there's just so much to talk about in this. Our show is really about the financial industry and how to work better with the financial industry, get more out of your money, which is everybody in the financial industry is after it. The banks are after it, the investment companies are after it, the insurance salesmen are after it, the financial planners are after it. Everybody wants a piece of it, the kids are after it, everybody wants your money, and so it's like how do you get more out of this? We need to talk about what we're putting our money in, because that's a big part of this, but we need to understand when the narrative what we're hearing about investments right now. It's very well packaged and sold to us. What I want to do is help people understand how to look for more information to make better decisions.

Speaker 1: 4:24

Well, and I think you and I do a really nice job of trying to help our listeners of the show realize that life is more than money. But we can't not talk about money because money is a major component of it. So life is more than money, but money plays a major facet in it. And let's just let's just go through, maybe, people's reasoning as to why they might be going to the internet. You're out there raising a family, working hard, building your career. There's only so much mental bandwidth. You know you do something for a living. It's probably not in the world of financial planning.

Speaker 1: 4:56

And so what do you do? You go to the internet because you want to ask, just like in every other facet of your life how can I be a better parent? How can I be a better spouse? Give me a pathway to whatever fitness, weight loss? So we've become so accustomed to going to Googling things that we just want answers on. But if you're not careful, it can assume that because you asked Google a question, and it's even more I'm not even sure of what the word I'm looking for, but enticing when, as you're typing in a question, google is already recommending a suggestion for how you want to finish, which can make you believe, as a searcher, like, okay, everybody's asking this question, so how should I and Google is starting to fill in invest my money? And it's like, yes, that's what I want to know.

Speaker 1: 5:40

You pull up page one of Google and it's you know every well written article on the surface that you can imagine that when you only have so much time, you're like, great, I'm going to consume as much as I can.

Speaker 1: 5:51

But if you don't have a filter or a wealth map to the treasure of life, then everything can be like you know the right turn, until you start taking those turns and you're like, how can I keep reaching a dead end? And that's frustrating. So I think what we want to be able to do is, rather than just hit you between the eyes, what we think kind of take you through a thought process and a journey to give you, I think, all the information that we think is important to help you, at the end of the day, hopefully make a decision that's right for you based on your situation. But you and I have spoke about exposing what's on the internet quite a bit, because there is a lot of hot garbage mixed within these blog posts that you read, but I think it's very, very confusing for people that are trying to do the right thing at the end of the day.

Speaker 2: 6:35

Yeah, and we're going to get into even how the advisors and the financial industry is set up to not necessarily care about how much money you're making, but just how much money you have with them and how many fees they're making. You know, and that's it's hard for people to really come to grips with the fact that they're being sold stuff. But you know you mentioned, like, what are people actually doing there? They're going out and seeking help because people want to know how do I do this? I want to be responsible, I want to get as much out of this as I can and you know I'll do it myself. I like doing it myself because I don't have to pay a bill.

Speaker 2: 7:08

You know there's there's a lot of things you can do by yours, for yourself, and there's some things that they can seem easy on the outside but then you're really messing things up. That's going to come back to haunt you down the road and you don't know it until it happens. Like, for instance, if you decide you can do your own electrical work because you know you watch a YouTube video on it and then the house burns down two years later, you know that's kind of your fault because you did the electrical work, thinking that a YouTube video can replace being a certified electrician. So I think that there's there's a challenge with and I know that that frustrates people that I would say that that you know to do it yourself part. But so let's say you're doing it yourself.

Speaker 2: 7:44

Why are you doing it yourself? A lot of people do it themselves because they think they're smart and everybody else and that might not be you. Maybe you're doing it yourself because you've read out there online that nobody can do it better, or maybe somebody has told you nobody can do it better, or lots of resources have shown you, or maybe you've had an advisor who really didn't do a good job, or maybe you don't want to pay a bill. I mean, we've worked with so many people that literally will not engage in financial planning because they're going to get investment advice.

Speaker 2: 8:13

They don't want the investment advice Like think about how stubborn we are with this, and where does that stubbornness come from? What's convinced us that we've got all the answers or that nobody has the answer? So our opinion is just as good as anybody who studies this stuff, and so it's a really interesting place to be. So we don't want to pay the bill, so we feel good. Look, I'm saving all this money, like I have literally sat in front of people and shown them what they are doing. They don't even have to hire somebody to do it different. But I've shown them different ways to do it and I said look, if you do it this way here, probably looking at X amount of hundreds of thousands of dollars over your lifetime, more in return and they're like no, I like what I'm doing, or I really like that fund, that's my favorite fund, and it's like you're looking at it going. This makes no sense. Why are we doing things? Because we like the name on the statement more than we actually, or the results. We've been programmed to say well, it doesn't matter, because nobody really understands the markets or nobody can beat the markets. This is just as good as something else. If I sell this and I buy that, maybe I'm giving up something really good and I'm getting something not as good.

Speaker 2: 9:25

The other issue is that people don't like to interview Hiring a financial planner. You need to go interview. You need to put some work into it, you've got to put some time into it. You've got to put some thought into it. You don't just go hire the first person you find or who your buddy knows. You go and you make sure that they're going to match up with what you're looking for. I would say you go talk to an advisor if they're not saying a lot of stuff that we're saying on the show, because it's a lot more deeper than what we actually get into in this show. You've got to have a little spidey sense that you're going off saying be concerned. Or I don't have to learn. Listen, if I don't go to Steve, if I don't come talk to you, if I don't come talk to somebody at your firm, I really don't have to think about the stuff you're going to make me think about. I'm not going to be challenged. I like that. I like not being challenged.

Speaker 2: 10:11

I can put my blinders on and people will say well, look at how far I got on my own. I had really good investments. Look at how much money I made. Really, were your investments that good or did you just put enough away? Even average got you to where you were at, or even below average. I mean, there's decades where the market goes up 300, 400%. You could buy a horrible investment and still make a ton of money in there and feel like you did something really good. But the question is let's say that you've been investing since 1980 and you have a million dollars Literally for the exact same amount of risk you were taking on. There's 10 other ways that you could have had $4 million.

Speaker 2: 10:49

Not saying that money drives everything, but, come on, why wouldn't you do some of these things? And it comes down to I think the more you question things, the more you're encouraged to question, the more you're encouraged to challenge, the more you're encouraged to figure out how these things work, the less stable the financial firms, the juggernauts, are and the firms that control large portions of the money, which tend to actually happen to be the large mutual fund syndicates. Now you've got Vanguard, you've got State Street, you've got BlackRock. That's where the vast majority of money in the market is, with those three firms on their platforms or in their funds or whatnot. They just want you doing what they've told you is the best, because if you challenge that at all, you might go someplace else. If you're just defeated and nobody can do better, you're not going to move.

Speaker 1: 11:53

We're going to stop right there to hear a word about our sponsor. We're here to help you get the most money in life as host of the show, but that doesn't just happen. You need good financial planners that have your best interests in mind. That's why we want to take a moment to talk about Seed Planning Group. Seed Planning Group is a fee-only financial planning firm that has a fiduciary obligation to put you as a consumer's best interest first. If you're not sure if they're the right fit for you, we would encourage you to head over to seedpgcom. That's seedpgcom. Fill out the contact us form and schedule your free discovery meeting, because you could be one good decision away from getting the most from your money in life. Well, and you and I were talking about the show. So if we're not ready to get into this no part of the conversation we can circle back to it. But I think part of maybe exposing the industry is helping people understand the behind-the-scenes mechanics of the information that you find on the internet. And where does this come from? We are a part of a platform that seeks quotes from different financial professionals really professionals from all backgrounds but you can create profiles that says I am a financial planning professional and I'm interested in these topics.

Speaker 1: 13:05

Reporters from every US News USA Today, forbes will send you. Hey, would you like to give us a quote on XYZ questions? So I'm writing an article on the five things all millennials should do. Travis, what's your take, or what's something that every retiree that's a high net worth individual should consider? What happens is these reporters collect quotes. So if you're somebody like us it's folks I'm going to spoil it kind of raw in your face, like this is what we think, and sometimes they publish it, sometimes they don't, but that's truly our take on it.

Speaker 1: 13:43

If you work for a major wirehouse, though, you have to go through layers of compliance and other hands and submit what you want to say, and so what happens is if you're a consumer and you look up what should I invest in, and it gives you some, your first blog post says to you according to so and so at XYZ firm and there's a quote to you as a consumer, they seem like an authoritarian figure because they work for XYZ firm. So what do you like? How do you even know what to question what they say? But what's crazy is kind of as we were talking about this series and how could we do it? We thought what if we put on our journalistic lens and let's look at what consumers are looking at, bring it to the surface and then kind of open the hood up on what is this actually saying, to give you all the information that we see? You do with it what you want.

Speaker 1: 14:29

So I think if you've got people that are out there today saying how should I invest, they go to the internet. They put the question and they're trying to do the right thing, which is what we're trying to acknowledge. You're raising your hand, trying to do the right thing and you find all these articles. How do you begin to filter through what is actually good for you and what is somebody trying to sell you? It's a money business. How do you know that there's not a bait and switch happening with what people are trying to do? So I know you and I had kind of spoke about this a little bit and I don't know if there was anything along those lines you wanted to touch on.

Speaker 2: 14:58

Yeah, I'm chomping at the bits that interrupt you.

Speaker 1: 15:00

I can see you.

Speaker 2: 15:03

I'm working on my listening skills.

Speaker 2: 15:05

So I was waiting for you to finish before I formulate some notes here. But about that, the quotes and everything. I got 22 requests for quotes, like yesterday, and I will not make a request with quote if the author, if the writer, doesn't know what they're talking about. And I respond to zero quotes requests. I literally got on there and the people who are actually putting the comments together do not know what they are talking about. So they are taking expert opinions from really unvetted sources. They're taking expert opinions though they're putting them into these articles. They are.

Speaker 2: 15:54

They are then saying that this is an authoritative article on a topic, for instance, one of them was you know what should Millennials be investing in? You know what asset, what assets should they be buying? And they said we know about the 401k, we know about the IRA, we're gonna talk a little bit about real estate, but what other assets? And it's like a 401k and IRA aren't even assets. Those are tax codes, those aren't investments. Period, they can own investments.

Speaker 2: 16:20

In fact, your mutual funds not an investment. The mutual funds a portfolio manager Like it's a portfolio manager. It is not an investment. They buy investments with your money. You literally hire somebody else at a mutual fund company to manage your money for you. The problem is they're not managing for you. They're managing that for a million other people at the same time. So what they're doing is really more for the collective good of everybody else, but really predicated on some of the the Some different situations that are going on because of what other people are doing. So it's not about you, it's. It's about a standardized system of ties process so you can collect a fee off of something.

Speaker 2: 17:03

But these, these writers that they're writing articles on things that they clearly do not understand, because they're not actually Asking a question that is relevant Right to the content. If they said, look, what types of investments should people be buying, for example, we understand mutual funds in the 401k Again, not investments, but still, at least you're, you're in the ballpark now, right, they're, you're putting your money in mutual funds and you could invest in rental properties and you could invest in, you know, gold or precious metals, and you could and you know on down the line, that would be a completely different thing. But and I've seen it all too often I've seen it on cable news you see a cable news and they're talking about you know, people's 401ks are cut in half. That's got to be the worst investment in the world. It's like that's not even an investment. Yeah Right, that'd be like me saying, hey, you know, you got the worst truck in the world. And I say, well, you know what kind of truck do you have?

Speaker 1: 18:00

I don't know.

Speaker 2: 18:00

Yeah, you have a truck, so it must be the worst in the world. It's like you know what kind is it, so we're doing too much that. And then the other thing is, I think, really just kind of bridge into this, this is not the argument that rich people have. So I, you know, we're gonna get into what rich people are doing. Well, let's just say, people who we work with clients a lot of clients in that one to twenty million dollar range and a lot of clients in the lower levels, the Zero to, let's say, two million dollars. They're not at the level where they're really getting the eye of the, the bigger investments, like the individualized investment approaches. They're still kind of in a smaller broker mentality type of stuff. So they're they're not hearing what they need to be hearing, but yet they're still mass marketed by Vanguard and other places like that. Do it yourself. You don't need those guys. I don't know what they're doing or anything.

Speaker 2: 19:00

I'll tell you what, though, the rich people aren't doing? The stuff that everybody else is doing and everybody complains about. You know, spoiler alert the rich keep getting richer. Well, they keep getting richer because they're not doing what everybody else is doing. Right, they figured out that there's a game and somebody's trying to get their money. And it's not that they don't hire people, but they hire people to do stuff. That is not generic defeatism, junk, like you know just. You know, just, admit that you can't do anything and so give me your money and pay me a fee and, you know, close your eyes and solve part of the ride. They're literally going out there saying you know, I got to the level where I'm at because I make smart decisions, I understand money and I expect my investments to be the same way. That's, that's the difference between somebody who's who's got a, a rich mentality, you know, mentality about making money and growing their money, versus somebody who is Worldwide. You know, I think just they've got the wrong mentality completely and it's a lot of times, just, I think, framed in by the structure of the industry, in the marketing and what's available to, what they're used to, what resources are at their fingers.

Speaker 2: 20:09

Because if you've, if you've gone and you've programmed yourself, I'm, let's say, you started with nothing and you built up and you've got two million dollars, three million dollars, and you really done that on your own because those advice you were dealing with along the way, that they probably did stay. We call them so-called financial advisor. They were trying to sell you mutual funds and annuities. So you're like I could buy those by myself. Why do I need you to do this? You're just trying to make a commission so you can stay away from me. So I want to deal with you.

Speaker 2: 20:35

So you get two, three million dollars guess what? The type of advisors that you can engage with, two or three million dollars completely different than the type of advisors that would engage with you when you had less than that. And they're gonna be doing different stuff. And if they're not doing different stuff, they're just the other ones from downstream. That moved up a little bit, right, but you still, you gotta think about it like everything else you do. You go out and hurt like if you're gonna hire real estate agent, there's good real estate agents and bad real estate agents. You don't just say, why not hire any real estate agent? You go and you shop for good real estate agent, right, so there's a. We're gonna really get into this, because what I wanna do is I don't want you to take it for me. I'm just gonna lay out information and people can draw their own conclusions with it alright.

Speaker 1: 21:20

So if you're checking with us this far, we've tried to tell you that the internet does have some good things on there, but we want you to be aware there's also a lot of story based selling that's happening from so called financial advisor is trying to get you to take action that can benefit them. Maybe not necessarily you, but the question still remains of how should you invest your money. We've told you that the life component is really our heart. We want to help people really understand life is more than money, but money plays a huge part of helping fund those dreams and desires. So we do have to get that right to as well.

Speaker 1: 21:53

So, because people are are sincere and saying travis, I'm, I'm interested at this point, okay, you're telling me that there's a certain way that rich people do it. It's, it's unlike anybody else. We're not gonna get into all of it today, because we wanna create a framework that can help, step by step, build a case to. By the time we share this information, you go okay, I get it, so we're not gonna hit you between the eyes like we normally do with it right now, but why don't you kinda lay out for us? Somebody is truly being sincere, saying I want to know how to invest. Is there a little bit of a roadmap that we want to give them as to where we're gonna go over the next few episodes? That could be helpful.

Speaker 2: 22:34

Yeah, I think it's gonna be awesome. If you're trying to learn, this is gonna be really good for you. If you're open to, I think I know what I'm talking about. But, okay, travis, go ahead and challenge me. I think you're gonna be. This is gonna be good. And if you're not open, if you think you gotta figure it out, I will challenge you to go through this Right, and you may get to the end, say you know what I'm just gonna ignore. Okay, fine, but we're gonna talk about some stuff that's gonna make you think about this, because if you know where to look for the whole thing with google, when you go and you google a question, you change one word in the question. All of a sudden, you go from again, maybe that twenty four thousand answers and now you got like a hundred million answers, right to change one word. Yeah, you gotta know what to look for.

Speaker 2: 23:19

Sometimes, and if you don't know what to look for, people may be setting up a setting up. Basically, they might be framing you right from the beginning to get you to think a certain way. Right, it's programming, and so my perspective on everything is I wanna know why. If you tell me I gotta do something, I wanna know why, and I do that with my clients. If I wanna tell him do something, I gotta justify the why and when. I can't justify why, that's when I start digging with the smoke, this fire. Right, there's some smoke here. You decide how big the fires and what you wanna do about the fire type of thing here.

Speaker 1: 23:57

Yeah, I'm gonna leave you with this, because if, for some reason, your journey stops on tits the suits with us right now, you just don't come back for another episode. Let me at least leave you with this. One thing that I love about you, though, is that you will challenge everything in a great way. To challenge everything is by asking questions. Folks, when it comes to your money, you don't have time to not ask questions because you had proposed it to me in episodes before. I got four young kids at home who I have watch. My kids is extremely important. You be darn darn well believe that I'm gonna ask potential babysitters lots of questions to figure out their integrity, their mindset, where they're at issues. Funny how, when it comes to our money, sometimes we don't put that same level of Not responsibility, but discipline to asking questions. So wherever you're at this journey, you do it yourself. You hired an advisory, been burned before in the past. Stay tuned. I think these next few episodes are really gonna take you on a journey that will be fun to walk through together.