Active vs Passive: How to Help Your Kids Invest
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In this bonus episode of Merryn Talks Money, host Merryn Thumset-Webb and senior reporter John Steppek tackle a listener question from Robert about whether active or passive investing is better for long-term goals, particularly when advising children. The discussion centers on a 40-year historical analysis of investment performance, comparing passive global index trackers like the MSCI World Index (averaging ~9% annual returns in sterling) against actively managed funds such as Scottish Mortgage Investment Trust (~13% annual return) and Warren Buffett’s Berkshire Hathaway (which underperformed the index). The hosts emphasize that even passive investing involves active choices—such as asset allocation, sector weighting, and index selection—making true passivity an illusion. They highlight how passive strategies often favor US tech stocks and momentum, which may not persist in the future as markets shift. The episode concludes with a nuanced takeaway: while beating the market is difficult, investors can still make informed, active decisions within a passive framework by adjusting allocations to diversify beyond dominant markets and sectors.
Passive investing isn't truly passive—it involves active decisions about asset allocation, sector exposure, and index choice.
Over the past 40 years, the global equity index tracker returned ~9% annually in sterling, a high hurdle for active managers to beat.
US tech-heavy passive strategies have performed well historically but may not continue due to shifting global market dynamics.
Investors can enhance passive portfolios by using equal-weighted indices or diversifying across regions and sectors.
The best approach may lie in a hybrid strategy: using passive benchmarks as a reference point while making intentional, active adjustments.
Introduction and Listener Question
Merryn introduces the episode and reads a thoughtful listener question from Robert about the long-term effectiveness of active versus passive investing for children's portfolios, setting up the core debate.
Historical Performance: Passive vs Active
“If you'd bought Scottish Mortgage Investment Trust in 1989, you'd have done almost 13% a year. But if you'd bought Berkshire Hathaway in 1987, you'd have missed 16.5% a year.”
The Myth of True Passive Investing
“There is no such thing as passive investing. Everything is active.”
Strategic Adjustments to Passive Portfolios
“You're effectively a momentum investor. You didn't mean to be, but you are.”
Closing Thoughts and Future Discussion
The hosts acknowledge the complexity of the question and admit they’ve made listeners more confused—but promise to revisit the topic, emphasizing its ongoing relevance.
“There is no such thing as passive investing. Everything is active.”
“If you're not doing that, i.e. you're not being a simple one-stop shop passive investor using a global index ETF like that, there is no such thing as passive investing.”
“If you'd bought Scottish Mortgage Investment Trust in 1989, you'd have done almost 13% a year. But if you'd bought Berkshire Hathaway in 1987, you'd have missed 16.5% a year.”
Hosts
John Steppek
person
Merryn Thumset-Webb
person
iHeartRadio
organization
Robert
person
Mostly Human
media
Scottish Mortgage Investment Trust
other
MSCI World Index
other
Lori Siegel
person
The Businessmen Podcast
media
Berkshire Hathaway
organization
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