Confused, overwhelmed, disappointed with the investment process and don’t know where to begin?
As you may have discovered, investing isn’t all that fun for the average investor. What options do you have?
You can do it on your own. But, how good are you on picking from tens of thousands of stocks, bonds and mutual funds that are available?
One financial writer calculated that if you stay up on the news in the press, magazines, online and cable, you'll be exposed to at least 42,000 "tips" every year from pundits and ads. How do you sift through all of that confusing information?
What do you --- the average investor, need to know about saving - investing for retirement?
There are no investment gurus. A magic formula that will help you to build your nest egg does not exist.
History shows us that the experts that you see on TV or read about in print cannot produce above-average returns on a regular basis. But, they will charge high fees and expenses that will under perform a totally unmanaged index mutual fund – a fund that charges low expenses and just buys and holds all or a representative sample of all of the stocks in a broad stock market index.
More than a hundred years of academic research has concluded that index funds are an investors best investment. Why?
Studies have repeatedly shown that over the long haul, index funds perform better than thousands of other competing mutual fund.
Index funds have regularly produced rates of return exceeding those of active managers by close to 2 percentage points. The reason? Management fees and trading costs.
They are cost efficient. Funds that mimic indexes always have lower fees and expenses because of their passive investment style. You don’t have to pay high priced managers of actively managed funds to pick stocks for the fund.
The expense ratio of the average index fund is below 0.2%. The expense ratio for an actively managed fund is 1.52%. Research on mutual fund performance shows that paying above average expenses makes above-average performance less likely.
Expenses don’t enhance performance. They erode it. Every $1 dollar you pay or lose now costs you not only that $1 but also the amount that $1 could earn over your lifetime.
Why use index funds?
Returns from index funds are predictable. They do not prevent losses when the market declines but you know beyond doubt that you will earn the rate of return provided by the stock market. With index funds, you capture the entire return of each asset class.
By using index funds, you use a simple, time-tested, low-cost, easy-to-understand, do-it-yourself, low-stress, uncomplicated approach to building your nest egg. Your – low maintenance portfolio does not require worrying about your investments on a day-to-day basis.
The S&P 500 Index outperformed almost two-thirds of large-cap active funds in the five years through 2005. The S&P Mid-cap 400 index bested 81% of mid-cap managers and the S&P SmallCap 600 topped 72% of small-cap manaagers.
What’s the difference? Actively Managed Funds or Passive Index Funds?
In an actively managed fund , the manager will try to pick individual securities (stocks and bonds) that will perform better than the market.
However, beating the market is due to luck not a skill that is repeatable. Studies show that only about 3 percent of active managers beat an appropriate index over a ten year or longer period. It is nearly impossible to predict which manager will get lucky and beat the market. Investors who have been lucky in the past should not expect a continuation of their good fortune in the future.
Passively managed index funds do not attempt to beat the market. They will seek to match the returns of a specific stock benchmark or index by buying representative amounts of each security in the index
In a 2004 report on investment behavior, Dalbar Inc, a financial-services research firm, found that over a 20 year period, the average equity investor earned 2.57% annually , compared to 3.14% inflation and the S&P 500 index investor earned 12.22% over that same period. The gap between the average active investor and the market is 9.65% a year.
Saving – Investing For Retirement- A Simple Approach That Works An easy, step-by-step, time-tested process for building your retirement nest egg. . Presents: A Brand New Workshop For 2006
In our workshop you will learn how to develop ten simple, lazy, low-maintenance investment portfolios that utilize index funds. Many investors are a bit wary of the concept of investing in the entire stock market average as represented by an unmanaged index stock mutual fund. However, some of the most sophisticated investors in the U.S., the administrators of institutional pension funds, invest billions of dollars in index funds because of their long term returns and low cost. They are the people who have the responsibility to do the right thing for many thousands of employees who are counting on their pension fund when they retire. There are a number of approaches you can take . In our workshop we will look at and discuss 10 simple, lazy-low-maintenance portfolios. What is the aim of this approach? It is to produce a portfolio of low-cost mutual funds investing in asset classes that are likely to outperform the S&P 500 Index and many, if not most actively managed mutual funds. In addition, we will examine and discuss such questions as ---- What is your greatest fear about retirement? ---How long will you live – how long should you plan for? ---How much money you will need to live on in retirement? --- Where will the money come from? --What is your personal tolerance for risk? Are you a conservative, moderate, aggressive investor? How should that influence how you allocate your assets? You will also participate in a risk assessment test that can help you to determine your tolerance for risk in investing. What kinds of assets will give you the returns you will need to achieve your goals---How do you combine those assets in the right proportions into a portfolio that is tailored specifically for you?- How can you learn to recognize and control the expenses of investing --- How do you develop a distribution plan that will give you the income you need in retirement along with the peace of mind of knowing you won’t run out of money? How can you benefit from our workshop? What we have learned from years of helping people, retirement planning - saving - investing is not easy and achieving retirement security requires time, adequate contributions to your plan and your active involvement. We know that you want an approach that is understandable, helpful and believable. We provide un-biased, independent, straight-forward, easy-to-understand and candid information - education that can help you do a better job. Interested in this workshop? Talk to the people in your benefits – compensation – HR office – your retirement plan administrator about this workshop and how it can help you and your fellow employees. Ask them to get in touch with us so that we can bring this informative program to your work place. We think you, the average investor, can gain a great deal from participating in this workshop. Email: [email_address] , phone: 607-255-4405 Index Fund Performance How has the investor in the average mutual fund performed in comparison with an index fund? Burton Malkiel, Professor of Economics at Princeton University, in his book, A Random Walk Down Wall Street , details the results “ In decade after decade, two-thirds to three-quarters of professionally managed funds are beaten by funds that simply buy and hold a broad-based stock-market index.” “ When you buy an actively managed fund, you can never be sure how well it will do relative to its peers. When you buy an index fund, you can be reasonably certain that it will track the index and that it is likely to beat the average manager handily.” Your Workshop Instructor Robert R. Julian, president of Retirement Planning Consultants, is an adjunct instructor at the School of Industrial and Labor Relations at Cornell University. He has also served as Director of Media Services and Director of Management Training Programs at the School. He has taught graduate courses in the area of Organizational Communications. He also conducts workshops and seminars for the university on such topics as planning for retirement, conflict resolution, negotiation, communication. He is the author of RETIREMENT PLANNING HANDBOOK 1st and 2 nd edition, 1998. 2 The average investor earned less than the rate of inflation. The Dalbar study found that investors hold mutual funds for an average of 4.2 years, buying at the highs and selling at the lows. This results in the average invstor greatly underperforming the market.
How long will you live – how long should you plan for?
How much money you will need to live on in retirement. How big your portfolio must be. What will you need in your first year?
Where will the money come from? What will be your sources of income? Chap 5 pg 55
Determine your personal tolerance for risk. For every investment you make, you should understand the risks involved. Risk exercise tests and discussion. Chap 10
How do you – should you make your investment decisions? Make your investment decisions based on what is probable, not what is possible. The brief bull market in 1999 showed us that returns of 75% were possible. But the bear market of 2000 – 2003 showed us that 75% losses were equally possible. We have three quarters of a century (75 years) of history to show us what is probable. This look at reality --- and not the flash-in-the-pan excitement of a bull market, should be the basis of your planning. That way, you will have probability working for you, not against you.
Determine the kinds of assets that will give you the returns you will need to achieve your goals. What is the index fund advantage? Chaps 6 – 10
8. Combine those assets in the right proportions into a portfolio that is tailored specifically for you. (chap 12)
Learn to recognize and control the expenses of investing. (chap 11) Smart investors pay attention to expenses. Sloppy investors don’t want to be bothered. But, over a lifetime, the difference can add up to thousands of dollars.
Establish a distribution plan that will give you the income you need in retirement along with the peace of mind of knowing you won’t run out of money. Withdraw money too fast and you could be in deep trouble. (chap 13)
Put everything you do on automatic pilot --- a plan that can be executed automatically. Accumulate your savings through dollar cost averaging. Invest in funds through automatic investment plans that take money out of your bank account on a regular basis or through payroll deduction. Set up your portfolio for auto- matic rebalancing at the same time every year. Invest in index funds, which by nature, automatically correct for unexpected disasters in the market. Example: If a big company in the S&P 500 Index tanks, the index will automatically correct with no action required from you --- they will drop that company and add a different one to the mix. Rebalance your portfolio every year.
In our workshop, we’ll look at and discuss 10 simple, lazy, low-maintenance approaches to building your retirement next egg by utilizing index funds. We discuss the concepts of risk and rewards and help you to determine your own tolerance of risk. We look at how you can incorporate your feelings about risk into an index investment portfolio. We examine a “historical snapshot” on how different asset allocation models have performed over different time periods. How do you maximize your chances of achieving your financial goals? Save enough, allocate your assets properly and approximate the stock market average. Asset allocation simply means to divide up your assets is the right proportions among stocks, bonds and cash to maximize your chance of achieving your financial goal with the minimum amount of investment risk. But they can’t and they don’t. What does the research show? Through the end of 2004, the S&P 500 Index (passively managed mutual funds) consistently outperformed 98% of mutual fund managers over the past three years and 97% over the past 10 years. Only 37 percent of all actively managed mutual funds beat the stock market average during the last fifteen-year period. Only 33 percent of all….. during the last ten-year period. Only 40 percent of all ---during the last three-year period. Only 20 percent of all ….average in each of the last three, ten and fifteen year periods. Most people would not leave on a two-week vacation without a plan or a road map. However, too many will move into a retirement that could last 20 – 30 years or more without any plan on how they will get there. (Check book web site -www.wiley.com/go/paulmarriman How has it performed? Portfolio #1 has an annualized return of 10.5%. Portfolios 2 through 5 each have an annualized return that is better than Portfolio #1 Find out how to utilize three simple principles of investing Questions you will need answers to 1. How long will you live 2. How much money will you need each year 3. What will be your sources of income 4. What will they provide 5. How do you feel about risk 6. Three basic options for investing 3
How good are the investment experts? Logically, you would think that stock picking “experts,” as mutual fund managers claim to be, who spend all day analyzing financial reports, interviewing company presidents and CEO’s, talking with research analysts and working with their research team, could pick enough companies and avoid enough bad companies to outperform the stock market, which is made up of all the good companies and all the bad companies combined . (coffee pg 65) Why a simple approach? Because it works --– 80 percent of the actively managed funds fail to beat the stock market average (index)--- 25% of institutional investing is with index funds. Many states allocate a large proportion of their investing to index funds. Fees are much lower for index funds --- .20% vs. 1.50% for actively managed funds. No loads --- some funds will charge 5% when you invest --- $1,000 invested will be worth $950 at the end of the first day of your investment.. (Research on the internet on institutional investing and why index funds and look at books I have.) But they can’t and they don’t. What does the research show? Through the end of 2004, the S&P 500 Index (passively managed mutual funds) consistently outperformed 98% of mutual fund managers over the past three years and 97% over the past 10 years. Only 37 percent of all actively managed mutual funds beat the stock market average during the last fifteen-year period. Only 33 percent of all….. during the last ten-year period. Only 40 percent of all ---during the last three-year period. Only 20 percent of all ….average in each of the last three, ten and fifteen year periods. Examine up to 10 – 12 lazy portfolios Some of the largest and most sophisticate investors in our country ---- the administrators of state pension funds invest huge sums of their money in index funds. How much? The state of Washington indexes 100% of their stock market money in index funds. California indexes 85 percent. Kentucky --- 67 percent. Florida --- 60 percent. New York --- 75 percent. Connecticut --- 84 percent. (pg 76 coffee) 5. Make your investment decisions based on what is probable, not what is possible. The brief bull market in 1999 showed us that returns of 75% were possible. But the bear market of 2000 – 2003 showed us that 75% losses were equally possible. We have three quarters of a century (75 years) of history to show us what is probable. This look at reality --- and not the flash-in-the-pan excitement of a bull market, should be the basis of your planning. That way, you will have probability working for you, not against you. -2- 6. Determine the kinds of assets that will give you the returns you will need to achieve your goals. The index fund advantage 7. Combine those assets in the right proportions into a portfolio that is tailored specifically for you. (chap 12) 8. Learn to recognize and control the expenses of investing. (chap 11) Smart investors pay attention to expenses. Sloppy investors don’t want to be bothered. But, over a lifetime, the difference can add up to thousands of dollars. 9. Establish a distribution plan that will give you the income you need in retirement along with the peace of mind of knowing you won’t run out of money. Withdraw money too fast and you could be in deep trouble. (chap 13) 10. Put everything you do on automatic pilot. Dollar cost averaging, automatic investment plans that take money out of your bank account on a regular basis or through payroll deduction. Invest in index funds, which by nature, automatically correct for unexpected disasters in the market. Example: If a big company in the S&P 500 Index tanks, the index will automatically correct with no action required from you --- they will drop that company and add a different one to the mix. Rebalance your portfolio every year. Most people would not leave on a two-week vacation without a plan or a road map. However, too many will move into a retirement that could last 20 – 30 years or more without any plan on how they will get there. (Check book web site ---- www.wiley.com/go/paulmarriman Ten Steps To Retirement (Merriman page xvi0) 1. How long will you live? 2. Establish a pattern of regular savings. 3. Determine how much money you will need to live on in retirement. How big your portfolio must be. 4. Determine your personal tolerance for risk. Risk exercise tests. Find out how to utilize three simple principles of investing Questions you will need answers to 1. How long will you live 2. How much money will you need each year 3. What will be your sources of income 4. What will they provide 5. How do you feel about risk 6. Three basic options for investing 4
Extra Stuff Everyone wants to “beat the market.” If the average investor earns less than the rate of inflation, perhaps it is time for a new approach. You can and should do better. Why can’t you earn an average of 10.4% on your investments? During the period from 1927 – 2004 (a period that included bull and bear markets) the S&P 500 had an annual return of 10.4%. (edit stuff out of what follows) The importance of indexes like the S&P500 is the debate between passive investing and active investing. There are funds called index funds that follow a passive investment style. They just hold the stocks in the index. That way you do as well as the overall market. It's a no-brainer. The person who runs the index fund doesn't go around buying and selling based on his or her staff's stock picks. If the overall market is good, you do well; if it is not so good, you don't do well. The main benefit is low overhead costs. Although the fund manager must buy and sell stocks when the index changes or to react to new investments and redemptions, otherwise the manager has little to do. And of course there is no need to pay for some hotshot group of stock pickers. However, even more important is the "efficient market theory" taught in academia that says stock prices follow a random walk. Translated into English, this means that stock prices are essentially random and don't have trends or patterns in the price movements. This argument pretty much attacks technical analysis head-on. The theory also says that prices react almost instantaneously to any information - making fundamental analysis fairly useless too. Therefore, a passive investing approach like investing in an index fund is supposedly the best idea. John Bogle of the Vanguard fund is one of the main proponents of a low-cost index fund. The people against the idea of the efficient market (including of course all the stock brokers who want to make a commission, etc.) subscribe to one of two camps - outright snake oil (weird stock picking methods, bogus claims, etc.) or research in some camps that point out that the market isn't totally efficient. Of course academia is aware of various anomalies like the January effect, etc. Also "The Economist" magazine did a cover story on the "new technology" a few years ago - things like using Chaos Theory, Neural Nets, Genetic Algorithms, etc. etc. - a resurgence in the idea that the market was beatable using new technology - and proclaimed that the efficient market theory was on the ropes. However, many say that's an exaggeration. If you look at the records, there are very, very few funds and investors who consistently beat the averages (the market - approximated by the S&P 500 which as I said is a "no brainer investment approach"). What you see is that the majority of the funds, etc. don't even match the no-brainer approach to investing. Of the small amount who do (the winners), they tend to change from one period to another. One period or a couple of periods they are on top, then they do much worse than the market. The ones who stay on top for years and years and years - like a Peter Lynch - are a very rare breed. That's why efficient market types say it's consistent with the random nature of the market. Remember, index funds that track the S&P 500 are just taking advantage of the concept of diversification. The only risk they are left with (depending on the fund) is whether the entire market goes up and down. People who pick and choose individual companies or a sector in the market are taking on added risk since they are less diversified. This is completely consistent with the more risk = possibility of more return and possibility of more loss principle. It's just like taking longer odds at the race track. So when you choose a non-passive investment approach you are either doing two things: Just gambling. You realize the odds are against you just like they are at the tracks where you take longer odds, but you are willing to take that risk for the slim chance of beating the market. You really believe in your own or a hired gun's stock picking talent to take on stocks that are classified as a higher risk with the possibility of greater return because you know something that nobody else knows that really makes the stock a low risk investment (secret method, inside information, etc.) Of course everyone thinks they belong in this camp even though they are really in the former camp, sometimes they win big, most of times they lose, with a few out of the zillion investors winning big over a fairly long period. It's consistent with the notion that it's gambling. So you get this picture of active fund managers expending a lot of energy on a tread mill running like crazy and staying in the same spot. Actually it's not even the same spot since most don't even match the S&P 500 due to the added risk they've taken on in their picks or the transaction costs of buying and selling. That's why market indexes like the S&P 500 are the benchmark. When you pick stocks on your own or pay someone to manage your money in an active investment fund, you are paying them to do better or hoping you will do better than doing the no-brainer passive investment index fund approach that is a reasonable expectation. Just think of paying some guy who does worse than if he just sat on his butt doing nothing! 5
One in four (25%) investors invest in one single conservative option --- usually a single conservative money market or a stable value fund. Professor of Economics Burton Malkiel of Princeton University, tells us that “Just by hitching your savings to the market as a whole, you will over time do better than 90 percent of all investors, including the pros.” Indexing is not the S&P 500 alone. "We're constantly being asked questions presupposing that the S&P 500 and indexing are synonymous," said Will McClatchy, co-founder of Indexfunds.com and author of Index Funds: Strategies for Investing Success . "It's astounding that so many people make this mistake; indexing is using a low-cost, benchmark-pegged approach to investing in a variety of asset classes." Better Than Average In Lake Wobegon, all the children are above average. Lake Wobegon, of course, is a fictitious place -- and so is a stock market in which many, let alone all, can be above average. "Half of the investors will outperform the market. That means the other half will under perform," says Gus Sauter, chief investment officer at Vanguard and manager of Vanguard 500 and Vanguard Total Stock Market Index. That out performance is in a given year -- it doesn't necessarily mean the same fund managers will outperform over the next one, five, 10 or 20 years. "Beating the market for one year -- even for 10 years -- has no predictive power over whether that individual will outperform in the future," said Larry Swedroe, a financial planner and author of Rational Investing in Irrational Times . The Vanguard 500 fund has outperformed 81% of its large-cap peers over the past 10 years, according to Morningstar. Let's look at how the investor in the average mutual fund has performed in comparison with an index fund that tracks the S&P 500, courtesy of indexing devotee Burton Malkiel in the newest edition of his A Random Walk Down Wall Street . According to Malkiel, an investor who put $10,000 in an S&P 500 index fund in 1969 would have a portfolio worth $327,000 by the end of 2002, assuming dividends were reinvested. A second investor who put $10,000 in the average actively managed mutual fund would have a portfolio worth $213,000. The index fund investor had a 50% greater return than the average. (For more on Malkiel's thoughts, read this interview.) "I think investors should recognize that the odds are stacked against actively managed funds," said Sauter. "The majority will under perform.“ It's Cheaper The greatest selling point for index funds -- and a key reason for the long-term out performance -- is the price. The average U.S. stock fund carries an expense ratio of 1.51%; the average Vanguard fund, by comparison, carries a 0.27% expense ratio. This example, by Thomas D.D. Graff and James M. Dugan of Cavanaugh Capital Management, drives home how much price matters. Investor No. 1 invests $100,000 in a portfolio of index funds, with an expense ratio of 0.22%. The portfolio returns 10% a year over 10 years. Investor No. 2 investors the same money in actively managed funds, with an expense ratio of 1.53%. The portfolio also returns 10% a year over 10 years. After 10 years, Investor No. 1 has $253,724, Investor No. 2 has $222,314. The difference: $31,410, or 14%. And that's assuming Investor No. 2 finds actively managed funds that keep up with the markets. Another major cost benefit of index funds comes on the tax side of the equation -- something few investors pay any heed. A recent Lipper study found investors give up as much as 23% of their total returns every year because of mutual funds that don't try to minimize taxes. Index funds are among the most tax-efficient funds available. (Check out this story for a fuller explanation for how tax-efficient funds benefit your portfolio.) A Coin Toss Index fund adherents like to compare fund managing to coin flipping. In A Random Walk Down Wall Street , Malkiel discusses a coin-flipping contest in which 1,000 contestants try to continually flip heads. As chance dictates, 500 would flip heads in the first round and would be allowed to advance to the next. In the second round, only 250 head-flippers advance. According to the laws of chance, by round seven, only eight of 1,000 have flipped heads. This analogy is meant to show that the laws of chance can explain some amazing success stories. What about the Bill Millers of the mutual fund world? The Legg Mason Value Trust manager has beaten the market in each of the past 12 years -- an astonishing feat. Of course, Miller and other fund managers have managed to outpace the market over the long haul. There are investing geniuses out there who can beat the market. But it's tough to know them in advance, and it's still tough to know them after 10 years. Consider the case of David Baker. 6
David Baker managed the 44 Wall Street fund, one of the hottest funds of the 1970s, racking up 36% a year on average over the decade. Predictably, the money poured into the fund. From 1980 to March 1988, Baker's fund lost 22% a year on average, and Baker left the fund. Style Drift Protection One of the keys to a diversified portfolio is style purity. In other words, if you are investing in a small-cap value fund, you don't want the manager pouring your money into large-cap growth stocks. "Style drift," in which a manager moves outside of the fund's asset class, can wreak havoc on a portfolio's balance. But beyond asset allocation, style drift also may have an effect on a fund's returns. Recent studies, including a 2001 study by Keith Brown and W.V. Harlow, have found that funds that are consistent in their investment style produce better returns that those with style drift. Style-consistent funds also have lower portfolio turnover, which means lower costs. Index funds, by definition, remain consistent in their style. Follow the Leaders "Why is it that at least two to three times as many institutional investors index compared with individual investors? The smart money is clearly indexing," said Will McClatchy, author of Index Funds: Strategies for Investing Success . Indeed, many institutional investors, such as pension plans, opt for index funds because of the long-term returns and low costs. (Although it should be noted that total indexed assets declined by 8% during the first half of 2002.) If big pension plans concede that they aren't confident enough picking winners, perhaps individuals might do well to follow suit. One of the smartest of the smart-money set -- the man who tutored Warren Buffett -- also gave an endorsement for index funds late in his life. Shortly before Benjamin Graham died in 1976, he was quoted in an interview in the Financial Analysts Journal as saying: "I am no longer an advocate of elaborate techniques of security analysis in order to find superior value opportunities. This was a rewarding activity, say, 40 years ago, when Graham and Dodd was first published. I doubt whether such extensive efforts will generate sufficiently superior selections to justify their costs." Core and Explore*Many index-fund followers suggest using index funds exclusively to achieve a diversified portfolio. Indexfunds.com has a great editors' picks section recommending index funds for all asset classes. Even for investors (like me) who believe in judicious use of actively managed funds, broad-based index funds such as the Vanguard Total Stock Market Index fund can be a great choice for the "core and explore"* portfolio. Core-and-explore portfolios use index funds as the core of the investment to get broad market representation and diversification at a low cost. Then, they "explore" by venturing into actively managed funds -- maybe a sector fund or emerging-market fund -- that they hope to use to beat the market. Like every other investment strategy, it still proves tough to beat the market with core-and-explore -- but it may be cheaper and more successful than going with actively managed funds only. (For more on core-and-explore portfolios, check out this TheStreet.com oldie but goodie. Get a Life It's not the 1990s anymore, back when everyone got 25% annual returns no matter what they did. Investing isn't all that fun to most individuals. People don't check their portfolio on Yahoo! every day -- heck, some don't even open up their quarterly statements. Sadly, I have a hunch the markets won't be that much fun over the next decade either. The point: Index funds offer the easiest way for individuals to have a diversified portfolio that only requires close inspections about once a year for rebalancing purposes. That way, you have more time to do other things. "You don't have to do all this research on managers, and you 'settle' for average market returns," says John Spence, associate editor at Indexfunds.com. Given that annual returns run at about 7% over the long run, you could do worse -- and many active fund investors do. ( Stuff from Burton Malkiel _ pg. 181 (change wording slightly) You will beat the results from most professionally managed accounts by putting regular savings into an investment program using index funds. You also need to diversify your assets over different investment categories according to your age and risk tolerance. Those two simple steps are all you need to follow the program. You will achieve wide diversification and incur a minimum of costs. 7
This approach may seem dull but it does work (OK). The best chance you have to minimize risk and achieve long-run investment success is, first, to diversify among a number of investment categories, including cash, bonds, real estate, and stocks. Then, within each investment category, you will achieve the most effective diversification by purchasing a broad-based index fund that simply buys and holds all of the securities compromising that investment category. If you utilize an indexing approach, you will do no worse than the market. No other strategy can make that claim. Even better, chances are that your returns than those touted by professional managers because the indexing approach guarantees that you will minimize investment costs and fees. Overview of the 12 step program for active investors More than a hundred years of academic research has concluded that index funds are an investor’s best investment. In numerous studies, only about 3% of stock pickers beat their benchmark. In taxable accounts, over a 15y year period, active investors keep only about 50% of the total return earned by their initial investment. Meanwhile, investors in index funds keep about 85% of the total return by maintaining tight controls over the silent and often invisible partners of high fees, expenses, taxes, transaction costs and more. Five dimensions of your risk capacity will be thoroughly measured resulting in a score and corresponding index portfolio. These risk capacity dimensions include time horizon, investment knowledge, net income, net worth, and attitude toward risk. Invest, relax and stay balanced. A strategy of buying, holding and rebalancing a portfolio of index funds is the best way for investors to maximize the expected returns of their investments. 8