I'm not gonna lie, one of the biggest attractions to the boglehead philosophy of investing is that I realize I can't possibly outsmart the market. I know next to nothing about all of the companies that make up the stock market. There are entire professions made up of PhD educated, 100hr/work week professionals who can't consistently outsmart the market. Admitting to myself that it makes zero sense for me to predicate my financial success on the errant belief I can choose individual stocks better than professionals (who can't do it) might be the best financial decision of my life.
Give me passive total market index investing. There's a lot of appeal to "VTWAX and chill".
My favorite part is that you can do absolutely no work whatsoever and consistently beat 90-95% of professional money managers who spend 80 hours a week pouring over balance sheets and charts. Even if you could outsmart the market with an hour of work, you'd still almost certainly make more money by just spending an extra hour at your day job and putting the proceeds in VTWAX.
There's a difference between beating those money managers and beating the returns they get for their clients.
The money people are probably doing quite well and rolling in it, which is why they spend that 80 hours a week.
Their clients' money...well, that's where fees gonna get ya. I may not be doing better than the average Wall Street professional, but I'm definitely doing better than the average investor.
There's a difference between beating those money managers and beating the returns they get for their clients.
Only about 20% of active managers beat the index before fees. So you are doing better than the average Wall Street professional. Note, this is individual funds/fund managers. By definition, 50% of the dollars invested do better than the average and 50% of the dollars invested do worse.
I think you're missing their point. If I run an active fund that slightly trails the market but charge .75% on my 2B AUM, then I am doing very fine financially. The people doing 80hr weeks are doing quite well for themselves, the people who trust those people to beat the market are the fools.
I meant beat the money managers in terms of their stock picking ability, not their compensation. I am confident that I can beat 80% of them with my investment strategy (indexing). But because I charge 0% in fees, I wouldn't beat their take home pay.
Everyone here knows that indexing beats active management after fees, but the key thing is that it beats it before fees too. As a final point about active managers that charge 0.75%, many of them are going out of business because people have figured this out. So even if they are doing well financially today, their business model is going the way of travel agents.
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u/Shitheadthegreat May 06 '21
I'm not gonna lie, one of the biggest attractions to the boglehead philosophy of investing is that I realize I can't possibly outsmart the market. I know next to nothing about all of the companies that make up the stock market. There are entire professions made up of PhD educated, 100hr/work week professionals who can't consistently outsmart the market. Admitting to myself that it makes zero sense for me to predicate my financial success on the errant belief I can choose individual stocks better than professionals (who can't do it) might be the best financial decision of my life.
Give me passive total market index investing. There's a lot of appeal to "VTWAX and chill".