Dimensional's David Booth says young investors should focus on passive funds

Younger investors should focus on passive investing instead of short-term strategies with unrealistic expectations that have risen in popularity amid the meme stock frenzy, said David Booth, executive chairman of Dimensional Fund Advisors.

“You have to be smarter than the market to beat the market,” said Booth, during an interview with CNBC’s Bob Pisani at the Future Proof Conference on Tuesday. “And it turns out the market is smarter than I am and it’s smarter than any individual investor.”

According to Booth, younger investors have unrealistic expectations, often focusing on short-term strategies rather than long-term objectives.

Although more boring in nature, passive funds could have a better payoff in the long run than active trading when taking into account the added fees, Booth said. Index investing, in particular, offers better investment alternatives and more diversification for portfolios, he added.

“These young investors think that somehow they’ve created a new revolution with investing but they don’t realize revolution already occurred going back 50 years with indexing, and so forth,” Booth said. “The ideas that led to indexing have really transformed the investment business.”

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