Barry Ritholtz, Columnist

William McNabb on the Costs and Limits of Passive Investing

The costs and limits of passive investing.

October 25, 2016 at 2:50 PM UTC

Barry Ritholtz is a former Bloomberg Opinion columnist. He is chairman and chief investment officer of Ritholtz Wealth Management, and was previously chief market strategist at Maxim Group. He is the author of “Bailout Nation.”

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This week on our Masters in Business podcast, we speak with William McNabb, chief executive officer and chairman of Vanguard Group. Vanguard is a passive-investing pioneer, with about two-thirds of its $4 trillion under management in index funds. The fund, created by Jack Bogle, just celebrated its 40th anniversary.

We discuss the cost aspect of investment management, both in its passive and active forms. Economies of scale allow Vanguard and rivals such as BlackRock, State Street and other huge firms to spread those costs across a very large asset base. There is a limit to how much scale can lower prices, and while we are not there yet, we may be getting close.