Tuesday, February 24, 2009

We are not fools after all

"No matter how efficient or inefficient markets may be, the returns earned by investors as a group must fall short of the market returns by precisely the amount of the aggregate costs they incur. It is the central fact of investing."
John Bogle, founder of Vanguard Investments, as quoted by Nick Kapur in his column in The Motley Fool.

My kids and I own Vanguard index funds, and I have been wondering if I was a fool for sticking with them. Maybe not. An excellent article summarizing some of the data that supports Mr. Bogle's sage advice appeared this past Sunday in a solid NY Times piece written by Mark Hulbert, The Index Funds Win Again. Mr. Hulbert cites a new study by Mark Kritzman, president and chief executive of Windham Capital Management of Boston. The upshot, after all the commotion, according to Mr. Kritzman: “It is very hard, if not impossible to justify active management for most individual, taxable investors, if their goal is to grow wealth.”

In other words, even in these parlous times a well diversified stock portfolio (think globally) is probably the best bet for most of us, and those of us who can't find our way into a hedge fund need not feel inadequate or worry that we're missing out. In fact, we might just make out and have the last laugh.

I believe the United States is on sale; theUunited States will lead the world back on track, and we will have a once in a lifetime opportunity to buy a piece of the future.

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