We’ve all had patients come in with a runny nose, cough, and fever. Most of the time, the evidence is clear: it’s a viral infection, and the best treatment is rest, fluids, and time.
But patients often feel uneasy if they’re “doing nothing.” They want antibiotics — something that feels active, decisive, and powerful.
The problem? Antibiotics don’t treat viral infections. In fact, they can cause side effects, trigger allergic reactions, and contribute to antibiotic resistance. Sometimes the hardest — but smartest — course of action is to wait.
Evidence beats emotion.
Active vs passive investing works the same way
Passive investing is like watchful waiting. You do some research and set things up correctly at the start. You keep contributing regularly. Then you let time and the market do their work.
It feels too simple — almost negligent. Surely wealth is too important to just “leave alone”? Isn’t it worth paying someone to do something more sophisticated?
That’s where active investing comes in. Like a patient demanding antibiotics, investors go to brokers or fund managers and ask them to intervene — to pick winners, avoid losers, and beat the market.
The hidden side effects
Here’s the catch: active management comes with costs that compound over time.
Sometimes an active fund manager does outperform the market for a year or two — just like antibiotics sometimes seem to “work” for a cold that was going to resolve anyway. But the side effects add up. Higher fees eat into your returns. More frequent trading triggers more tax. And over the long run, the evidence is clear: most active managers underperform the market.
The SPIVA (S&P Indices Versus Active) report tracks this relentlessly. Over a 15-year period, more than 85% of actively managed funds underperform their benchmark index. The longer the timeframe, the worse the odds get. It’s not that active managers are stupid — it’s that markets are efficient, and beating them consistently after costs is nearly impossible.
This isn’t fringe opinion. Eugene Fama won the 2013 Nobel Prize in Economics for demonstrating that markets are highly efficient and that consistently outperforming them is extraordinarily difficult. In medicine, you wouldn’t ignore a Nobel-prize-winning trial that changed practice. The same standard should apply to how you invest.
Why doctors assume active is better
In medicine, paying for expertise usually gets you better outcomes. We send patients to specialists, order advanced imaging, perform complex surgery. It’s natural to assume investing works the same way: pay more, get more.
But it doesn’t. Markets aren’t like patients — they’re already highly efficient, with millions of participants processing information in real time. The edge that expertise gives you in medicine doesn’t translate. After fees and taxes, the odds of an active manager consistently beating a low-cost index fund are tiny.
As John Bogle, founder of Vanguard, put it:
“In investing, you get what you don’t pay for. Costs matter.”
This post is for educational purposes only and is not personalised financial advice.