DEEP DOWN, I REMAIN absolutely confident that the vast majority of American families would be well served by owning their equity holdings in a Standard & Poor’s 500 Index fund (or a total stock market index fund) and holding their bonds in a total bond market index fund. (Investors in high tax brackets, however, would instead own a very low-cost quasi-index portfolio of high-grade intermediate-term municipal bonds.) To repeat, while such an index-driven strategy may not be the best investment strategy ever devised, the number of investment strategies that are worse is infinite.
Hear Warren Buffett: “Most investors, both institutional and individual, will find that the best way to own common stocks is through an index fund that charges minimal fees. Those following this path are sure to beat the net results (after fees and expenses) delivered by the great majority of investment professionals.” (Don’t forget that an index fund with minimal fees is also, for most investors, the best way to own bonds.)
For all of the inevitable uncertainty amid the eternally dense fog surrounding the world of investing, there remains much that we do know.
As you seek investment success, realize that we can never know what returns stocks and bonds will deliver in the years ahead, nor the future returns that might be achieved by alternatives to the index portfolio. But take heart. For all the inevitable uncertainty ...