By Financial Advisor Peter Egolf | June 9, 2021
Did your parents tell you that they wanted you to grow up to be average? I doubt it. Yet, if they were talking about investing, they would have been onto something.
Too frequently, investors aim for above-average returns (e.g., active investing or stock picking) and end up with sub-par returns, missing out on the average market return. How can investors improve their strategy regardless of their risk profile? Aim for average.
The goal of investing should be to obtain market returns for the very lowest cost. Everything else is just noise aimed at transferring wealth from individual investors to the financial industry. Need an example of the benefits of average? The S&P 500, or the 500 largest U.S. companies by market capitalization, has returned over 9% annually for the last 50 years.1
How can individual investors obtain the market returns for the lowest cost? A diversified set of index funds.
Index funds are a basket of stocks or bonds held within a mutual fund or, more recently, an exchange-traded fund (ETF). At One Day In July, we work with new and existing investors to understand the benefits of avoiding high-cost, tax-prone investments and the advantages of a low-cost, tax-efficient portfolio strategy built around diversified index funds.
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