Playing the Lottery: A Winning Fiduciary Strategy?

About 85% of 401k plan assets are still in actively
managed funds.  What could justify this?!

If you're a fiduciary, the sooner you check these facts and take action, the safer you'll be.  Any debate over the effectiveness of active fund managers and their ability to gain more reliable returns than passive (index) funds has long been settled.  Judging by the increasing number of participant-brought lawsuits, the folks to whom the money belongs seem to be catching on quicker than their plan stewards!

There have been myriad studies employing a variety of evaluation methods and the results are unanimous and concrete: Active managers, whether by skill or luck, cannot beat comparable passive fund results with any regularity whatsoever. If a plan fiduciary opts to utilize actively-managed funds, he stacks the odds overwhelmingly against himself and his trusting participants.  He may want to consider the lottery instead.

The odds of winning a coin toss are 50/50. The odds of winning in Las Vegas are a bit less than that. The odds of an active manager beating a passive (index) manager are less than 10%. Let's say that's off by a factor of 3. Why would you ever do it? 

It’s likely there is a skillful (or lucky) active manager or two out there that has a track record that beat the index over a 10-year span. But shall we guess what the odds are that you now (or will) work with him? Before you try to find him, shall we guess the odds of him repeating the performance? Buy a lottery ticket instead. Your odds are pretty much the same, but at least the cost is very low and utterly transparent! And should you actually win the lottery, the payoff will be huge -- not some tiny (albeit miraculous) margin of difference your active manager achieved.