Great summary of why passive investing is winning by focusing on the leading company in the passive investing space (Vanguard). From the Economist:

Vanguard now manages over $3.5 trillion on behalf of some 20m investors. Every working day its coffers swell by another billion dollars or so. One dollar in every five invested in mutual or exchange-traded funds (ETFs) in America now goes to Vanguard, as does one in every two invested in passive, index-tracking funds, according to Morningstar, a data provider.

This chart shows how investors continue to benefit from Vanguard’s increase in assets under management (AUM):

Some questions for  your students:

• How is Vanguard’s investing approach different from other investment management firms?
• Do investors who invest in index funds believe that they can beat the market?
• How does the ownership structure of Vanguard favor investors?
• How is Vanguard able to keep their costs lower than competitors? How do their costs compare to the competition?
• What is the difference between defined benefit and defined contribution plans? How does this trend help Vanguard?

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Looking for additional resources that explain passive investing? Here are a few:

• Planet Money podcast on a million dollar bet between Warren Buffett and a top stock trader
• What’s the Catch? Investment Costs
• Audio Resource: Is Investing Advice Worth It?

About the Author

Tim Ranzetta

Tim's saving habits started at seven when a neighbor with a broken hip gave him a dog walking job. Her recovery, which took almost a year, resulted in Tim getting to know the bank tellers quite well (and accumulating a savings account balance of over $300!). His recent entrepreneurial adventures have included driving a shredding truck, analyzing executive compensation packages for Fortune 500 companies and helping families make better college financing decisions. After volunteering in 2010 to create and teach a personal finance program at Eastside College Prep in East Palo Alto, Tim saw firsthand the impact of an engaging and activity-based curriculum, which inspired him to start a new non-profit, Next Gen Personal Finance.

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