How Highly Effective Do-It-Yourself Investors Beat Over 90% Of the Pros

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A concise, to the point, evidence-based, safe and effective investing protocol is well understood and recommended by top financial experts. Chicago School of Economics professor Eugene Fama who in 2013 shared the Nobel Memorial Prize in Economic Sciences  with two other colleagues, Princeton economics professor Burton Malkiel, the “Sage of Omaha” Warren Buffet and other experts all agree is that while it is simple and straightforward to equal the S&P 500 it is incredibly challenging to outperform it over a span of 10 years or more. To equal it, investors only need to buy an exchange-traded fund made up of the 500 companies in the S&P 500 and sit in a rocking chair.

There are thousands of ETFs. The key wording here is to buy an ETF which represents the US economy such as a broadly-based index fund. Suitable exchange traded funds (ETF’s) to track the S&P 500 are the S&P 500 ETF (symbol SPY), Vanguard S&P 500 (symbol VOO) and the iShares S&P 500 (symbol IVV). Each is an excellent approximation of the U.S. economy, the most robust economy in history.

How effective is sitting in a rocking chair as an investment style? Warren Buffett, who has lived in the investing world for his entire adult life and who surrounds himself with investing experts wants 90% of such an index to make up the estate that he is leaving to his wife with the remaining 10% to be in high-quality bonds. That says something, doesn’t it?

Harvard’s endowment, the biggest of any American university, bigger than the GDP of half the nations of the world, is managed by some of the most qualified experts on the planet. Had they used the rocking chair approach to investing over time, their results would have been similar. This is entirely consistent with the performance results of other multibillion-dollar university endowments. If you log onto the Investopedia website and look for “passive vs active investing” you will see the following: “Study after study (over decades) shows disappointing results for the active managers. In fact, only a small percentage of actively managed mutual funds ever do better than passive index funds.”

If the rocking chair approached investing is so concise, to the point, evidence-based, safe and effective why aren’t more of us doing exactly that?

A quote from Upton Sinclair applies here. “It is difficult to get a man to understand something when his salary depends on his not understanding it.” The same would be true of a woman, of course. There are over one million financial managers, personal financial advisers and financial analysts in a trillion-dollar business trying to persuade us that what they do is brain surgery and rocket science and that we need them to do our investing for us. Some provide excellent services and good value for money; some of them barely finished high school.

The Monday Morning Millionaire Program supports its members in following the rocking chair investing philosophy. Members save countless hours.

Please note that the Monday Morning Millionaire Program contains opinions only. It does not provide any investment advice or endorsements.

Dr. Milan Somborac

The Monday Morning Millionaire Program supports do-it-yourself (DIY) investors which I have been for over 50 years. About my team and me