Without data, all you have is an opinion

You only need to spend a few minutes online to discover that people are willing to share some pretty strong opinions on just about every topic imaginable to whoever will listen.  It’s not that we’re immune from this offline, but it’s less common for someone to talk about their new phone over lunch and have a chorus of people chime in about why a competitor’s phone is better.  This is especially dangerous in when it comes to personal finance.


The nature of how we typically find information online is also another barrier on the road to financial freedom.  Your goal should be to find actual data on which to base your decisions, and not simply opinions.  Take the topic of prepaying your mortgage.  If you wanted to obtain more information on this topic, what would you search for?

The first three searches will provide you with pages of opinions on the reasons to prepay your mortgage (or not), and can be a good way to learn what questions to ask next. You’ll see people arguing about the emotional aspects of paying off your house.  But you don’t need anyone else to tell you how you’ll feel paying down your house versus having a bigger nest egg come retirement.  What you really want to know is how much money you’ll save if you don’t (or do) prepay your mortgage.  With the last two searches you’ll see results for different types of online calculators.

Think about how you phrase the questions you ask online, and how your wording determines the results you’ll see.  You don’t want to just find results that support your current thought process, because your opinions can be wrong.  It’s easy to think of other examples where our questions color our results.  Think about a common retirement question:  how much money do I need to retire?  Clearly this is a question we’d all like to know, but every link on the first page of the results in Google starts out wanting to know how much you’re currently earning.  What does your current earnings have to do with how much money you’ll need in retirement?  All these results are doing is showing you an opinion of how much you’ll need, and typically you can’t see the data behind the assumptions.

So maybe a better question is:  what are the typical expenses of a retiree?  Now you’re looking at facts, and not opinions, and you can easily see if those facts apply to you.

Imagine a foreigner asking what is the maximum amount of money needed to live in the United States?  I’m not talking about 10 to 50 years from now, I mean today.  Could he live on a maximum of $25,000 a year, $50,000, $75,000, or $120,000?  I bet there are readers who would say it’s possible to live a comfortable life on $25,000, and others that think it would be a struggle on $120,000.  The answer would be “it depends.”  Where does the person live?  Does he have a family?  Are there others he needs to support back home?  But by asking, what are the costs of living in Iowa, or New York City, it’s possible to formulate an intelligent answer.

cityWhen it comes to deciding how and where to invest your money, make sure you have the facts.  When I was deciding whether or not to have a rental property, I noticed that all of horror stories I received were from people who didn’t personally have a rental property, and all of the positive stories were from people who did.  Years later, I’m glad I didn’t listen to the people with (sometimes strong) opinions.  Instead of asking is a rental property a good idea, I asked what are typical rental property expenses. 

Many of the questions you might have about retirement and financial independence are questions because people have strong opinions, not because good data isn’t available.  My employer switched 401(k) providers earlier in the year, and now offer three categories of funds:  target retirement date, passively managed, and actively managed.  I was amazed when I read a description about the last two where they said people who purchase passively managed funds believe it’s not possible to beat the market, so they try to match it.  Actively managed funds attempt to beat the market.  This amazed me, passively managed funds aren’t an opinion!  There is mountains of research showing that passively managed funds exceed their actively managed counterparts after the higher fees of actively managed funds are taken into account.


My company offers a small/mid cap and a large cap in both an actively managed fund and a passively managed fund.  This is a chart of the fund type, the fund fee, and the return over the past 10, 5, 3, and 1 years.

Fee 10 Year 5 Year 3 Year 1 Year
Actively managed small/mid cap fund 0.58% 9.09% 17.85% 18.66% 4.81%
Passively managed small/mid cap fund 0.08% 9.56% 18.28% 19.26% 6.25%
Actively managed large cap fund 0.31% 7.89% 17.34% NA 7.42%
Passively managed large cap fund 0.01% 7.89% 17.33% 17.29% 7.39%

This second chart is the amount of money you’d have if you invested $100,000 10, 5, 3, or 1 year ago:

Fee 10 Year 5 Year 3 Year 1 Year
Actively managed small/mid cap fund 0.58% $226,307 $221,786 $164,638 $104,230
Passively managed small/mid cap fund 0.08% $248,049 $230,721 $169,282 $106,170
Actively managed large cap fund 0.31% $207,642 $219,526 NA $107,110
Passively managed large cap fund 0.01% $213,506 $222,259 $161,314 $107,380

As you can see, not once did the actively managed fund return more money than the passively managed fund.  We all know that past performance is no indicator of future performance, but what rational person would bet against this data?

Here is the percentage the passively managed funds exceeded the actively managed funds:

Fee 10 Year 5 Year 3 Year 1 Year
Actively managed small/mid cap fund
Passively managed small/mid cap fund -625.00% 8.77% 3.87% 2.74% 1.83%
Actively managed large cap fund
Passively managed large cap fund -3,000.00% 2.75% 1.23% NA 0.25%

That’s not an error in the fees, the passively managed fund fee is 625% lower for the small/mid cap funds, and a whopping 3000% lower for the large cap fund.

Getting the facts doesn’t take a lot of time, and it really helps you feel confident in your financial decisions.  The next time you’re looking for financial information, make sure you’re asking the right questions, so you can find the best data to guide you on your path to financial freedom.  After all, without data, all you’ve got in an opinion.

If you have any questions or comments, you can reach out below or continue the discussion in the forum.  If you are interested in receiving a notification of new posts, you can subscribe here.

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