By Brett Arends, MarketWatch
Courtesy Everett Collection
OK, so the idea of buying individual stocks is about as out of fashion these days as shoulder pads and big hair .
For more investors, low cost index funds, especially exchange-traded index funds, are the way to go. You can see why. They’re cheap, easy, and diversified.
How annuities could protect your retirement income
Annuities can help plan for retirement during a volatile market. Here's what to know before you start looking for one.
And, as any fan of Vanguard’s late guru Jack Bogle will tell you, low cost index funds are almost certainly going to beat most investors. The percentage of fund managers who beat the stock market after fees, for example, may be less than 10%.
But let’s say that hasn’t deterred you.
Let’s say you’ve read the contrary data. Maybe you saw the study which found that 10% of retail investors beat the market indexes over time. Maybe you read the academic paper which found that when smart investors just stuck to their few, conviction picks they could actually do pretty well . Maybe you’ve read up on investors like Warren Buffett (and even the young Allen Mecham ), who seem to beat the market by keeping their heads and investing in sound, high-quality companies.
(Oh, and maybe you’ve noticed that most of the studies that say “investors can’t beat the market” tend to focus on “the average investor.” Obviously “the average investor” can’t beat the market after fees, because the average investor is the market. But the “average” tennis player doesn’t win a match either, because the losers counterbalance the winners. That’s no reason not to work on your backhand.)
Let’s say you’ve also realized that while the S&P 500 index /zigman2/quotes/210599714/realtime SPX -2.14% has tripled your money this millennium, when you count dividends, a long list of perfectly ordinary well known, well run, household-name blue-chip stocks have beaten it into a cocked hat. You didn’t have to be a Wall Street insider to buy and hold stocks like Microsoft /zigman2/quotes/207732364/composite MSFT -2.94% , Procter & Gamble /zigman2/quotes/202894679/composite PG -1.06% , PepsiCo /zigman2/quotes/208744353/composite PEP -0.97% , Starbucks /zigman2/quotes/207508890/composite SBUX -2.93% , Johnson & Johnson /zigman2/quotes/201724570/composite JNJ -0.40% , Lockheed Martin /zigman2/quotes/200691238/composite LMT -1.86% and Nike /zigman2/quotes/203439053/composite NKE -2.72% , all of which have crushed the S&P over 20 years, in many cases several times over.
(Oh and if you’d bought stock 20 years ago in Sherwin-Williams /zigman2/quotes/210069062/composite SHW -2.10% , hardly a high risk, little known venture, you’d have made 38 times your money. No, really.)
If you are doing it yourself, the best of luck.
Just one thing.
You probably want to hang it up around the age of 70, if not before.
That’s not only because, by that age, you are aiming to conserve what you’ve got more than you are aiming to make more, so you’re probably moving more money into bonds, or an immediate lifetime annuity.
But it’s also because, frankly, after 70 our financial awareness and skill starts going into decline.