The purpose of investment management is to maximize the probability that you will have more than enough money to care for your financial concerns throughout the entirety of your life, and direct the excess to loved ones and/or charitable causes you support. Active Investment Management philosophies and strategies invented in the early 1900s were made obsolete in the 1970s with the advent of Passive Investment Management. Unfortunately, most investors still embrace the obsolete strategies of Active Investing promoted by Wall Street firms and banking institutions.
Controlling the controllables with Passive Investment Management philosophies and strategies dramatically increases the odds of financial success in the long run. The Seven Fundamental Truths of Investing will help you avoid dangers of market timing, stock picking, high costs, unnecessary tax burdens, and desultory investment decisions.
The Seven Fundamental Truths of Investing
- Inflation is Our Greatest Threat
- Due to longevity, 30 year retirements are becoming the norm, not the exception
- At 3% inflation, prices for the goods and services we all need to survive will double every 24 years.
- The income we need at the end of our retirement years will be more than twice that at the beginning of retirement.
- Own Innovation
- The only defense against inflation is to own an appropriate allocation of equities.
- Only portfolios with appropriate allocations of equities will outpace inflation and allow us to increase our retirement income at the same rate prices increase
- Stay Fully Invested
Missing only the best 20 trading days out of 5040 reduces returns by more than 6%. *
- Market timing adds uncertainty and anxiety, reduces efficiency, and increases taxes and costs, all thwarting your financial objectives.
- Computers Made Picking Stocks Obsolete 40 Years Ago
- Active Investing, which utilizes managers and advisors to pick stocks to ‘outperform’ the market, is now obsolete
- Computers made markets efficient because all knowable information disseminates at the speed of light and is immediately priced into the price of securities and markets
- On average, Active Investment Management will underperform Passive Investment Management by the extra expense and costs of active management… usually 1 – 2% annually.
- More Global Companies = More Innovation = More Wealth for the Investor
- Would you rather own the innovation and thinking power of just a few individual companies (individual stocks) or the entrepreneur thinking and innovation of more than 12,000 companies in over 43 countries?
- Owning an individual security increases risk 2 to 3 times that of owning its entire asset category
- Tilt Towards Small Cap Stocks
- On average, small cap stocks in the US, developed international and emerging economies produce higher returns than large cap stocks over time.
- Tilt Towards Value Stocks
- On average, value stocks in the US, developed international and emerging economies produce higher returns than growth stocks over time
* – S&P 500 from 1/1/1991 through 12/31/2010, 5040 trading days