As featured in The Wall Street Journal, Money Magazine, and more!

Rule for Building Wealth: Don’t Try to Beat the Market

by Flexo on December 14, 2006

in Investing

Here’s the bottom line about investing, straight from Fortune Magazine’s 10 Rules for Building Wealth: “Even the best fund managers have trouble beating the S&P 500, so give up the chase.”

If the professionals — people who spend hours each day studying the markets — can’t do it consistently, why do you think you can? Sure, there are success stories, but they are anecdotes, not true representations of what trading in the stock market is really like. Survivorship bias also shows that we’ll hear about success stories much more often than we’ll hear about failures, leading towards more misunderstanding of the way markets work.

Matching the market does not mean you’ll receive average returns. Considering most fund managers don’t beat indexed mutual funds, matching the market will exceed the average.

Fortune says, “The most straightforward way to avoid this trap is to diversify your assets and then rebalance your portfolio at least once a year.”

I’ve written about diversification and rebalancing quite a bit in the past. Here are some professional individuals who have done so as well:

* Article: Stress-Free Investing in Four Easy Steps, by Erin Burt
* Book: The Boglehead’s Guide to Investing, by Larimore, Lindauer, and LeBoeuf (my review)
* Book: The Smartest Investment Book You’ll Ever Read, by Daniel R. Solin (my review)

VN:F [1.7.4_987]
Rating: 0.0/5 (0 votes cast)


Email this article Email this article Print this article Print this article
Share this article: Twitter | Tip'd | Facebook | Delicious | Reddit | Digg
About the Author

Flexo, the owner and creator of Consumerism Commentary, has been blogging and writing for the internet since 1995 and has been building online communities since 1991. Find out more about him and follow him on Twitter.

If you enjoyed this article, get the free RSS feed or get daily emails.

Join the free Consumerism Commentary newsletter. Enter your email address here to receive weekly emails with behind-the-scenes information, exclusive giveaways, and money tips.



Related Entries on Consumerism Commentary

  • TMT
    I agree this is best approach to take.

    Further, there is a big difference between "investment" returns and "investor" returns. And as a result, many investors have a hard time leaving their investments alone to work for them over time. They keep getting sucked into the buy high & sell low cycle driven primarily by fear & greed.

    Check this out: http://www.qaib.com/showresource.aspx?URI=actno...

    I would attribute this to behavioral issues more than anything else.
  • I like the approach, trying to beat the market means you need to have a lot of good information at your disposal. My approach is to have some diversified investments while still leaving a little bit for me to invest in as I saw fit: for whims, companies that caught my eye and I think they'll do good and simply for the risky investments that can't guarentee anything.

    As long as you ensure that the majority of your investments are tied up in funds or bonds that have consistently had good returns then any money you 'play' with is gravy if you get anything from it.
blog comments powered by Disqus

Previous post: Free Downloads of Mozart Sheet Music

Next post: Wealthiest in the World: I’m in the Top 10%