The title of this blog is a mathematical certainty. A similar mathematical certainty is that money managers on the average cannot outperform money managers on the average.
When we subtract the time and the monetary costs of managing money, on the average, we get a guaranteed underperformance relative to the market as a whole.
That is another mathematical certainty.
That is why the Monday Morning Millionaire Program so enthusiastically recommends investing in an exchange-traded fund (ETF) which mirrors the S&P 500 index which itself is a good proxy for the American economy on the whole. We are connecting to and benefitting from the strongest economy in history. Warren Buffett himself, regarded by many as the greatest investor in history, wants this approach to be used in the settlement of his estate.
Michael Bloomberg has stated that Donald Trump would be wealthier had he invested his inheritance in an ETF which mirrors the American economy and sat in a rocking chair after that. In Trump’s defense, he can justifiably state that his way is more exciting,
Low-cost, diversification and tax efficiency make up the rational, intellectual foundation of indexing, that is, investing in an ETF which mirrors the American economy. The difference between indexing and managed money is that the latter has no rational, intellectual foundation.
Why invest in the stock market at all? There are so many other ways to invest. The chart below provides the answer. (Used with permission from Prof. Elroy Dimson.)
Over the last 117 years, no investment category has equaled investing in the market. Will that be the case over the next 117 years?
Seasoned Monday Morning Millionaire Program members know that in addition to the best possible returns, investing in the market has the following four advantages:
- constantly quoted prices
- absolute liquidity
- low transaction costs
- excellent record keeping provided by brokers.
No one can pick stocks or time markets in the short run. Nevertheless, you can reliably make decent money in the U.S. with a slow and steady approach of investing in a low-cost, market index ETF. To quote John Bogle, forget the needle, buy the haystack. Starting early in life and saving 10 percent of your annual income and investing using the Monday Morning Millionaire Program method will allow you to maintain your career lifestyle into retirement.