The Bogleheads' Guide to the Three-Fund Portfolio

CHAPTER ONE The Investment Industry

The U.S. investment industry is the largest and most profitable in the world. A 2013 study by the United States Consumer Financial Protection Bureau reported the following: “The total amount spent annually by financial institutions and other financial service providers on consumer financial products and services, including both awareness advertising and direct marketing, is approximately seventeen billion dollars.” (Italics mine.) This money comes out of the pockets of the industry’s customers and goes into the pockets of company owners, brokers, financial advisors and others seeking to make a profit at the expense of investors.

Rick Ferri, CFA, a former stock broker, retired financial advisor, and author of eight financial books, wrote: “Let’s face it: Most investment companies are in business to make money from you, not for you. Every dollar you save in commissions and fee expenses goes right to your bottom line.”

Just as the gambling industry wants people to think they can beat the casino, the investment industry wants investors to think they can beat the market. Of course, a few lucky gamblers do beat the casino, but MOST DON’T. It is the same for investors: Some will beat the market, but MOST WON’T.

Why do some investors outperform the market while others don’t? Princeton professor Burton G. Malkiel, who co-inspired my “light switch on” moment, mentioned in the Preface, with my reading of his timeless, A Random Walk Down Wall Street ...