The Bogleheads' Guide to Investing, 2nd Edition

Chapter Seven Keep It Simple: Make Index Funds the Core, or All, of Your Portfolio

There is a crucially important difference about playing the game of investing compared to virtually any other activity. Most of us have no chance of being as good as the average in any pursuit where others practice and hone skills for many, many hours. But we can be as good as the average investor in the stock market with no practice at all.

—Jeremy Siegel, Professor of Finance, Wharton School, University of Pennsylvania, and author of Stocks for the Long Run

In his outstanding book, The Four Pillars of Investing, William Bernstein writes: “The stockbroker services his clients in the same way that Bonnie and Clyde serviced banks.” While most won’t publicly admit it, the vast majority of stockbrokers, mutual fund managers, sellers of investment products, and money managers don’t earn their keep. In fact, most of them build substantial wealth at their clients’ expense. More than one broker has been heard to remark, “We make millionaires—out of multimillionaires.”

What’s that? You say your money guy is making you a fortune? We sincerely hope that’s the case. However, with a very simple, no-brainer investment strategy called passive investing you have, at the very least, a 70 percent chance of outperforming any given financial pro over an extended period of time. And over some 20-year periods, passive investing outperforms as many as 90 percent of actively managed funds. The reason is because this ...