Andy Tobias, author of “The Only Investment Guide You’ll Ever Need”, believes that after a certain point, it doesn’t help to know more about investing.
Andy Tobias:
If you’re using more complex strategies, that implies active trading. Transactions have costs. There are brokerage commissions. You have the spread. And then you have taxes if the trade’s not in a tax-free account.
Plus, you are competing with folks who are very smart. You may be smart too, but most people can’t compete with the Wharton graduates who do this full-time.
The market’s every bit as hard to outwit as ever — you can have faith in that. But there are now even better index funds than the ones I used to recommend. With traditional index funds, weighted by market capitalization, you wind up overweighting overvalued stocks and underweighting those that are undervalued.
So I still prefer index funds: With their low fees and terrific tax efficiency, index funds are like horses with 20-pound jockeys running against horses with 200- and 300- and 400-pound jockeys. [But now there are new] index funds that don’t suffer from this weighting flaw. Where the others will perform almost exactly as the indices do, minus a sliver for the fees, these smarter-weighted funds may actually have you beating the indexes in small but, over time, meaningful ways.
I think a lot of people would rather have more control over their life than less. A lot of this is commonsense stuff. Just knowing that index funds let you beat 80% of your friends and neighbors — now you’re already way above average with money.
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