For the average person, investing can be a daunting prospect. With the wide selection of investment vehicles available, consumers are often left wondering where the best place is for their hard-earned money. On top of the already confusing number of choices, enter a wide variety of “investment experts” who scream their personal brand of advice at the top of their lungs. One expert will scream about the reliability of the stock market, how it will rebound within the next month. The next expert will shriek about the imminent failure of civilization, and that everyone should throw all of their money into precious metals. All of them have their own series of books, ready to be purchased by fearful investors, who are desperate for answers.
No One Really Knows
The truth of the matter is the majority of investing gurus and experts know next to nothing about what the stock market will actually do. Standard and Poor recently published the results of a study of large-cap and small-cap fund managers. During their study they found that 70% of large-cap fund managers failed to perform as well as the S&P 500 Index. Small-cap managers were even worse, with 85.5% of small-cap funds performing worse than the S&P SmallCap 600.
Monkeys Throwing Darts Are The New Gurus
For even more of a laugh, consider a contest run by the Wall Street Journal. In their contest, stock market experts were invited to pick a portfolio of stocks, and Wall Street Journal staffers would pick their own portfolio of stocks, except by throwing darts at a stock table. After 100 contests, the stock market professionals managed to win only 61 times. That means blindly picking stocks is only slightly worse than having a highly paid team of professionals, who dedicate their life’s work to understanding financial markets, pick your stock portfolio. What’s worse is that during the contests, the professionals edged out the passively-managed Dow Jones Industrial Average by only two percentage points.
What Do All Of These Mean
Drop your money into low overhead index funds, or even better an exchange-traded index fund. The chance of a fund manager actually beating the market is very low, and the task of tracking down a fund manager who does consistently beat the market is a daunting task. Since index funds are not actively managed, the costs the fund skims off the top is lower, which means more money in your pocket. ETFs have even lower costs, since they normally dispense with advertising.
Donald Trump Is Not A Business Genius
Donald Trump is often held up as a titan of business, born to make blockbuster deals. What many people don’t realize is that he was born rich. After his father died, Donald Trump inherited $ 200 million. According to who you listen to, he might have turned that $ 200 million into billions, or a bit less. Either way, experts have noted that if Trump took that initial inheritance and put it into an index fund and then did nothing, he would have the same amount of money or more. What this means is over the long term, the stock market goes up and along with the market go the index funds.
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