Originally Posted by ERD50
The only way you will know if these guys earned their keep is this:
Give them an AA you are comfortable with.
Let them choose the funds, and you mimic that AA with index funds/ETFS. It would not be hard. Compare returns and volatility. That would be a comparison.
Even this wouldn't prove much, especially to the converted. All you'd know when it was over was that, in retrospect, over that particular time period and market conditions, one method topped the other. You'd have to do a great number of these to prove to yourself that the result was statistically significant. In the meantime--Manager A changes (or the software is improved at Fido, etc) and the new and much brighter Manager B (or software, etc) makes the previous data obsolete.
There's no way an individual can prove this to himself using his available resources. Fortunately
, the academic studies have just about closed the book on the indexing vs active management debate, and anyone who wants to avail themselves of the info can look at it. Unfortunately
it doesn't come packaged in a glossy handout and it doesn't promise instant world-beating results, so it will always be at a disadvantage. I plan to leave Kabekew alone--he's happy, he believes he's getting a great deal, and his payments to Fidelity are helping to keep the costs of my Spartan funds low. It's a win-win.