Low Cost Index Investing

At IV Lions, low cost, passive index investing forms the foundation of our approach to managing client assets. It has been well documented that most actively managed mutual funds do not consistently beat the market.

In aggregate traditional active management must underperform passive management because of a theory Professor William Sharpe referred to as The Arithmetic of Active Management. In short, one investor can only outperform the market when another underperforms it. Mathematically the sum must always be zero (a zero-sum game). When fees are taken into account, active management in aggregate must therefore underperform passive.

Index investing involves investing in securities that track the performance of an entire market index such as the S&P 500. As opposed to trying to beat the return of the market, these funds deliver the return of the market (minus a small fee).

Index investing is not however a constrained or one-dimensional investing solution. Quite the contrary as the world of exchange traded funds (ETFs) has brought a tremendously diverse spectrum of investing possibilities, from commodity futures markets to real estate investing. Dozens of different markets can be tracked at low cost, allowing investors to collect a very diverse set of risk premiums (sources of return).


About IV Lions

Nelson’s column in London’s Trafalgar Square is guarded by four huge bronze lions cast from the metal of guns taken from old naval battleships. The Battle of Trafalgar represents triumph over adversity and the lions are symbolic of the financial guardianship we offer our clients.


Investing Quotes

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    • “Be fearful when others are greedy. Be greedy when others are fearful.”

      —Warren Buffett

    • “The individual investor should act consistently as an investor and not as a speculator.”

      —Benjamin Graham

    • “Know what you own, and know why you own it.”

      —Peter Lynch

    • “Sometimes your best investments are the ones you don’t make.”

      —Donald Trump

    • “It’s not whether you’re right or wrong that’s important, but how much money you make when you’re right and how much you lose when you’re wrong.”

      —George Soros

    • “My favorite holding period is forever.”

      —Warren Buffett

    • “The essence of investment management is the management of risks, not the management of returns.”

      —Benjamin Graham

    • “You make most of your money in a bear market, you just don’t realize it at the time.”

      —Shelby Davis

    • “We have two classes of forecasters: Those who don’t know and those who don’t know they don’t know.”

      —John Kenneth Galbraith

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