Chart of the Week: Risks of Index Investing

With the industry buzzing about the shortcomings of active management, it has never been more important to make clients fully aware of the risks of passive investing. This chart shows that, since the 2008 financial crisis, duration has increased about 50% in the Barclays US Aggregate Index, leaving passive fixed income investors historically more vulnerable to interest rate risk. The fall in yield during that time period from around 4% to around 2.2% also means their compensation for this added risk is limited. Do not forget that your clients’ assets need to be managed to a certain level of risk, and passive investing has no such parameters. It is not about what you make, it is about what you keep.