How You Can Beat The Market With Passive ETFs

Posted On March 1, 2018 2:25 pm

Think of them as a hybrid of a passive fund and an actively managed one. Active funds often charge between 0.5% to 1% expense ratios for a fund manager to pick stocks for you. However those higher fees and the fact that most active funds “shadow index” the S&P 500 means that 95% of them can’t beat the market over time. On the other hand smart beta ETFs are a rules based approach in which the ETF basically creates a proprietary index of higher quality stocks based on time tested market beating metrics that it then passively tracks, at much lower cost.

Just remember that factor investing isn’t a magic bullet, meaning a quick and guaranteed road to riches. You still need to follow the same long-term strategy as with passive ETFs, meaning dollar cost averaging, (always be investing), and don’t panic sell during a correction. But if you can maintain that discipline, then smart beta ETFs might be able to help boost your returns by 1% to 2% a year over those of the broader market. Over a long enough period of time that might be the difference between retiring in comfort and not retiring at all.


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Dividend Sensei
Dividend Sensei

I'm an Army veteran and former energy dividend writer for The Motley Fool. I currently write for both Seeking Alpha, Simply Safe Dividends, and DividendSensei.com My goal is to help all people learn how to harness the awesome power of dividend growth investing to achieve their financial dreams, and enrich their lives. With 22 years of investing experience, I've learned what works and more importantly, what doesn't, when it comes to building long-term wealth and income streams. I'm currently on an epic quest to build a broadly diversified, high-quality, high-yield dividend growth portfolio that: 1. Pays a 5% yield 2. Offers 7% annual dividend growth 3. Pays dividends AT LEAST on a weekly, but preferably, daily basis