Does Active Money Management Work?

October 14, 2022

Those of you who know me know that I’m not a huge fan of money managers.  It’s not that I have anything against them personally, but I do have something against the industry as a whole.  There are good and bad people in every industry.  The good ones are just stuck in a bad industry.

I have a problem with an industry that will charge you a fee in the years when your money is lost.  It’s like paying a moving company that lost half of your stuff during the move.  You wouldn’t pay them for that service.  Yet you’re required to pay a management fee even if your money is lost.  Insult to injury. 

However, my opinion doesn’t matter.  What matters is results.  The question then becomes, are you better off using a money manager, or just letting your money sit in a variety of index funds without having to pay the management fees?

There is one example in history of a money manager beating the total return of the market.  That man is, Peter Lynch. Lynch ran the Magellen Fund and beat the total return of the S&P 500 ten out of the twelve years that he was at the helm.

Whether this was a fluke, or it was skill, it is nonetheless impressive.  But the question remains can someone continue to beat the market the way Lynch has?

Let’s look at a blurb from Retirement Researcher and what they have to say:

“So how do I get from “Peter Lynch is a superhuman investor who can see the future” to “active management doesn’t work”? It seems contradictory, to say the least.”

“Let’s look at what happened after Lynch left. How good was Peter Lynch, who clearly knew what it took to beat the market, at identifying someone else who could do the same?”

“…For you to be better off using active management, you need to identify someone who can consistently beat the market on a risk- and fee-adjusted basis. Otherwise, you’d be better off with a plain, boring, passive investment strategy.”

“It turns out even Peter Lynch couldn’t do it… let’s stop and think about the situation Lynch was in when choosing his successor… As you can probably imagine, Lynch was pretty well-revered by the end of his tenure. Everyone wanted to work with him. That means he had infinitely more access to any information he wanted about the people who would succeed him… He worked with them, so he knew how they went about investing… he had any and all of the information he might have conceivably thought was meaningful… And he still couldn’t pick someone who could beat the market.”

“With the S&P 500 comparison, Lynch’s successors look pretty average. Smith and Vinik ran the fund for a combined seventy-three full months. In that time, the Magellan Fund beat the S&P 500 Index over thirty-nine of those months, so 53% of the time.”


So, basically, it’s a coin toss.


Continued from Retirement Researcher:

“We can learn all sorts of lessons from Lynch, but one is particularly applicable to typical investors: picking winners is hard.

Even Lynch, who was a winner himself, couldn’t do it. Or at least his pick(s) weren’t good enough for us to be able to separate their skill from the random noise of the market.

Picking winners is more than just finding a fund with a five-star rating from Morningstar and pretty good three- and five-year returns. You have to find someone who can out-predict the entirety of the market for years at a time. They need to be able to see the connections that everyone else doesn’t, and then figure out what they will mean for security prices.

They need to be able to predict the future. That’s a pretty big ask.” [Emphasis added]


So, now we know that there is no Messiah of Wall St. that is going to give you the secret fund or the secret stock.  It’s literally all guessing.  Intelligent guessing, but still guessing.

And because of this industry of professional guessing, what is happening right now to retirees? 

Take a look at this blurb from Financial Advisor Magazine:

“A majority of retired Americans are living on less than half of their preretirement annual income, even when Social Security is included, according to a survey by Goldman Sachs Asset Management.

The survey also found that 29% of retired respondents are getting by on 40% or less of their preretirement income.”

 “The current environment is driving considerable uncertainty for retirees, and those living on less than half of their pre-retirement income are particularly vulnerable,” said Greg Calnon, GSAM’s head of multi-asset solutions.

“Goldman Sachs Asset Management’s recently released Retirement Survey & Insights Report for 2022, conducted in July and August, took data from more than 1,500 U.S. adults of various ages.”

“The causes of financial stress were many and varied, but topping the list were high inflation (cited by 71% of respondents), future healthcare needs (51%), and potential reductions in Social Security (46%).”

“Calnon noted that low yields on fixed-income portfolios and declining equity markets were contributing to the anxiety as well. Retirees, he said, are deeply concerned about “how much they can spend and how long their savings will last.” [emphasis added]


Okay, I’m sure all of you are so tired of me saying how simple it is to get rid of stress and anxiety by using a financial product that can be traced all the way back to the Roman Empire.  There is a reason annuities have stood the test of time.  It’s because they work!

Those of you who have watched my videos know my background as a Firefighter/Paramedic.  If I can figure this out, so can you.  I have run hundreds of strategies for clients, and when you cover your basic living expenses with annuities and leave the rest in other investments, not only can annuities improve your overall portfolio, but you also give yourself peace of mind (AKA, sleep insurance).

But you cannot just use annuities blindly.  You have to know which annuities to use, and when to use them.  That’s why I started Atlas Financial Strategies.  I tell everyone that I’m a terrible salesman.  But if God has given me a gift, it is that I can take a lot of information, extract the important pieces, and complete a puzzle that gives my clients a better picture of their retirement.

I am not the end-all-be-all, but I know how to make these things work in your favor. 

So, should I be the only person involved in your retirement planning? 

Absolutely not!

If you and I have ever spoken in the past, you may remember the 4 people that need to be involved in your retirement planning:

  1. Safe Money Advisor (Annuities, Cash Value Life Insurance, LTC Insurance)
  2. Risk Money Advisor (Stock, Bonds, Mutual Funds, ETF’s, etc.)
  3. Tax Advisor (Preferably a CPA)
  4. Legacy Advisor (Estate Planning Attorney)


In my opinion, these people should be separate but should be in communication with each other.  I’m always leery of the one-stop shop.  I just feel it’s a breeding ground for conflicts of interest.

Okay, I’ll wrap this up.  Does active management work?  According to the guys who research this stuff, not very well.  Does that mean you shouldn’t use an active money manager?  Absolutely not.  That is a personal decision, but it could be considered with only a portion of your retirement portfolio.  Not all of it.  And that’s what most of them will try and get you to do.  Hand over all of your money.

Do your homework.  Continue to educate yourselves.  If you are looking for a start, head over to the Video page on this website and start watching the videos I have created to date.  There will be more in the future.

In the meantime, I wish you all the best in your financial education!



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