CEO Of Capital Group Opposes Risks Of Passive Index Returns

In the CNBC article “Warren Buffet is Wrong about this Investment Strategy”, Tim Armour offers his viewpoint on the “active vs. passive” investment issue. While Warren Buffet placed $1 million on a bet that his investment in the passive S&P 500 would perform better than the investments made by a hedge fund managers, Armour argues that the passive index return is not necessarily the path towards an enriched retirement.

Instead, he suggests that the “active vs. passive” debate within the industry is a concern that can hinder investors. Though he agrees with Buffett in that there are too many average or costly funds that don’t perform for investors, not all mutual funds have strong returns in the long run and the possible risks or costs of passive index investments are often overlooked.

Tim Armour speculates that investment should not be about active or passive but rather about providing high long-term investment returns at a low cost. And index funds are subject to the volatility and losses when the market turns, so they may not be the safest way to grow a nest egg.

The solution Timothy Armour proposes is finding notable fund managers through two filters, namely having low expenses and high manager ownership. By finding managers who invest their own money with investors’ money, they consistently perform better than the benchmark indexes.

Because Americans control their retirement, they need a real plan about how to get higher returns. With such high investment experience, the Capital Group has averaged 1.47% more than the index benchmarks. Such a difference in return is at least worth considering.

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Timothy Armour became Chairman of Capital Group in 2015 after 32 years of investment experience with the company. He started his career there as a participant in the Associates Program after receiving his Bachelor’s Degree in Economics from Middlebury College.

Tim Armour was an investment analyst covering U.S. service companies and global telecommunications, eventually becoming an equity portfolio manager as well as the principal executive officer of Capital Research and Management Company according to CNBC. He is now the CEO and chairman of Capital Group.