7 Investing Facts Your Broker is Terrified You'll Learn

The New Year is here, which always inspires me to resolve to make positive changes in my life. You can do the same with your investing. You can elect to continue to rely on the recommendations of brokers and advisers who claim to be able to "beat the market," or you can take control of your investments and invest based on sound academic principles. Your broker hopes you won't learn the following facts:

Investing Fact # 1: Most individual investors underperform the market. You would likely achieve better returns in a globally diversified portfolio of low management fee index funds in an asset allocation appropriate for you.

Investing Fact #2: You probably believe you are a much better investor than your returns indicate. You may be seriously overestimating your returns. You can't fix a problem until you acknowledge it exists.

Investing Fact # 3: The fees charged by a mutual fund (called "expense ratios") are a better predictor of fund performance than Morningstar's much-touted star ratings. In general, the lower the fees, the higher the returns.

Investing Fact # 4: Reliance on forecasts is misplaced. The musings of self-styled financial pundits are bad enough. Worse still, according to William Sherden, author of The Fortune Sellers, even the most credible sources, like the Federal Reserve and the Council of Economic Advisers, have no better track records than you would expect from pure chance. Keep that in mind the next time your broker gives you his views about the direction of the market.

Investing Fact #5: You are probably ignoring Warren Buffett's advice. Brokers love to use Warren Buffett as an example of a great stock picker. Given Buffett's stellar track record, the message is clear: He can do it and so can you. Really? Your broker is no Warren Buffett. Buffett has consistently advised investors to invest in index funds.

Investing Fact #6: You probably aren't a better investor than managers of huge pension plans. Pension plans have resources not available to most individual investors. They can hire the best and brightest fund managers. They use sophisticated consultants to carefully screen the track record of funds before they invest. They pay lower fees than individuals because of the size of their investments. You would think they would have an enviable record of "beating the market." You would be wrong. A comprehensive study of 3,700 plan sponsors over a 10-year period found that plans hired managers based on a track record of market-beating past performance. However, post-hiring returns were "indistinguishable from zero." Do you really believe your broker will have any greater success in picking the next "hot" fund manager?

Investing Fact #7: You probably don't appreciate the difference between luck and skill. As Larry Swedroe notes in his book, Think, Act, and Invest Like Warren Buffett, it's not impossible to "beat the market." Many funds and individual investors do so every year. Given the millions of investors and tens of thousands of fund managers, you would expect outperformance by some due purely to random chance. If there are inefficiencies in the market that can be exploited by financial "experts," then there should be evidence of persistent outperformance beyond what you would expect from luck alone. A 2007 University of Chicago study looked at the performance of domestic stock mutual funds from January 1980 to December 2006. The author concluded even the "best" mutual fund managers "do not have stock-picking skills." If these managers lack this skill, do you believe your broker has it?

Understanding these facts should help you change your approach to investing. Here's my recommended action plan:

1. Dump any broker or adviser who claims to be able to "beat the market."

2. Ignore economic predictions.

3. Don't engage in stock picking, or market timing.

4. Don't invest in actively-managed mutual funds where the fund manager attempts to "beat the market."

5. Determine your asset allocation and invest in a globally diversified portfolio of low management fee stock index funds and appropriate high-quality bonds.

Dan Solin is the director of investor advocacy for The BAM Alliance and a wealth adviser with Buckingham Asset Management. He is a New York Times best-selling author of the Smartest series of books. His latest book, 7 Steps to Save Your Financial Life Now, was published on Dec. 31, 2012.

The views of the author are his alone and may not represent the views of his affiliated firms. Any data, information, and content on this blog is for information purposes only and should not be construed as an offer of advisory services.



More From US News & World Report

--

Get stories like this on the Yahoo app and discover more every day.
Download it now.
Loading...
  • Brexit shock has been digested for now, Ifo economist says
    Brexit shock has been digested for now, Ifo economist says Reuters - 4 minutes 48 seconds ago

    MUNICH (Reuters) - The shock over Britain's decision to quit the European Union has been overcome for now, Ifo economist Klaus Wohlrabe told Reuters on Monday after the institute's monthly survey showed ... … More »

  • Don't expect pace of JGB buying to fluctuate sharply - BOJ Kuroda Reuters - 8 minutes ago

    OSAKA, Japan (Reuters) - Bank of Japan Governor Haruhiko Kuroda said on Monday he does not expect the pace of the central bank's government bond buying to increase or decrease sharply for the time being. ... … More »

  • Robert Kuok's nephew buys 49pct stake in Rolling Stone Business Times - 8 minutes ago

    SINGAPORE: A Singapore firm headed by a scion of one of Asia’s richest families has bought a 49 percent stake in Rolling Stone, with plans to diversify the iconic magazine into new business including live events and merchandising. BandLab … More »

  • Britain's Boris Johnson visits Turkey after failed coup
    Britain's Boris Johnson visits Turkey after failed coup AFP News - 11 minutes ago

    British foreign minister Boris Johnson began a key visit to Turkey on Monday, months after he led the successful "Brexit" campaign that played on anti-Turkish sentiments. The trip by Johnson, who also won a prize for a rude poem about President … More »

  • Japan's leader vows to accelerate economic measures, TPP
    Japan's leader vows to accelerate economic measures, TPP Associated Press - 16 minutes ago

    Japanese Prime Minister Shinzo Abe has pledged to accelerate his mix of policies to prop up Japan's economic recovery and speed up parliamentary approval of the Trans-Pacific Partnership trade pact. In ... … More »

  • Singapore Aug factory output +0.1 percent; weaker than expected
    Singapore Aug factory output +0.1 percent; weaker than expected Reuters - 17 minutes ago

    Singapore's industrial production in August barely grew from a year earlier, as a slide in marine and offshore engineering output and a fall in pharmaceuticals production tempered the positive impact from an expansion in electronics output. … More »

  • UK airline Monarch denies speculation it is in financial trouble
    UK airline Monarch denies speculation it is in financial trouble Reuters - 19 minutes ago

    British airline Monarch Airlines said it was operating normally and was on track to make a profit this year, after questions were asked about its future on social media. "Our flights are operating as normal, carrying Monarch passengers as … More »

  • China investigating North Korean bank, report says Associated Press - 30 minutes ago

    Chinese authorities are investigating a North Korean bank suspected of financing its government's imports of goods that might be used by the North's nuclear weapons program, a South Korean newspaper reported ... … More »

  • Dorsett Putrajaya rings in RM21 million in first-year revenue Business Times - 31 minutes ago

    PUTRAJAYA: Dorsett Putrajaya expects to achieve RM21million in revenue in its first year of operations by year-end. The hotel, which opened for business on Jan 16 this year, is banking on a mix of occupancy, F&B (food and beverage), and MICE … More »

  • Discounter Aldi plans 300 million pounds UK store revamp
    Discounter Aldi plans 300 million pounds UK store revamp Reuters - 35 minutes ago

    The British arm of German discount supermarket Aldi plans to spend 300 million pounds revamping its stores, stepping up the challenge to rivals in the midst of a price war that led to a second straight fall in annual profit. The firm said on Monday … More »

  • BOJ official says not trying to send message that it has done enough Reuters - 39 minutes ago

    The Bank of Japan's new monetary policy framework should not be taken as a message that the BOJ feels it is done with easing and wants fiscal policy to pick up the slack, a senior Bank of Japan official said on Monday. The new policy framework has … More »

  • Singapore scion buys 49 percent stake in Rolling Stone
    Singapore scion buys 49 percent stake in Rolling Stone AFP News - 53 minutes ago

    A Singapore firm headed by a scion of one of Asia's richest families has bought a 49 percent stake in Rolling Stone, with plans to diversify the iconic magazine into new business including live events and merchandising. BandLab Technologies, a … More »

  • Oil edges higher ahead of OPEC meeting AFP - 58 minutes ago

    Oil prices rose modestly in Asia on Monday ahead of a producers' meeting this week that might agree to cap supplies. But analysts warned that optimism should be tempered by experience of two years of gluts ... … More »

  • WHY IT MATTERS: Jobs
    WHY IT MATTERS: Jobs Associated Press - 1 hour 2 minutes ago

    THE ISSUE: Tepid income growth and shrinking opportunities for blue-collar workers have kept many Americans anxious about jobs and the economy, seven years after the Great Recession ended. The unemployment ... … More »

  • Japan Scrambles Jets as China Shows Off Force in Key Strait (1) Bloomberg - 1 hour 4 minutes ago

    Japan sent out the jets after eight of the Chinese planes crossed back and forth over waters between Okinawa’s main island and Miyako-jima island near Taiwan, the Defense Ministry in Tokyo said in a statement. While the Chinese planes didn’t cross … More »

  • Gold slips on firm dollar; market focuses on U.S. debate outcome
    Gold slips on firm dollar; market focuses on U.S. debate outcome Reuters - 1 hour 7 minutes ago

    Spot gold was down 0.3 percent to $1,332.88 an ounce by 0324 GMT. U.S. gold futures fell 0.3 percent to $1,337.60 an ounce. The U.S. presidential debate between Republican Donald Trump and Democrat Hillary Clinton will take place at 0100 GMT on … More »

  • BOJ's Kuroda says ready to use every possible tool to hit price goal
    BOJ's Kuroda says ready to use every possible tool to hit price goal Reuters - 1 hour 9 minutes ago

    Bank of Japan Governor Haruhiko Kuroda, in his first speech since the BOJ's decision last week to overhaul its radical stimulus programme, said the central bank stood ready to use every available tool to achieve its 2 percent inflation target. … More »

  • Russia under fire at UN as air strikes pound Syria's Aleppo
    Russia under fire at UN as air strikes pound Syria's Aleppo AFP News - 1 hour 12 minutes ago

    The US accused Moscow of "barbarism" over the worsening carnage in Aleppo, as Syrian and Russian warplanes pounded the city in one of the heaviest bombing raids of the five-year war. At an emergency meeting of the UN Security Council to demand … More »

  • Hubble has discovered an alien planet that orbits 2 stars — and that’s not the weirdest part
    Hubble has discovered an alien planet that orbits 2 stars — and that’s not the weirdest part Business Insider - 1 hour 17 minutes ago

    NASA, ESA, and G. Bacon (STScI) The astronomers … Continued The post Hubble has discovered an alien planet that orbits 2 stars — and that’s not the weirdest part appeared first on Business Insider. … More »

  • Parents of Mexico's missing students live in classrooms
    Parents of Mexico's missing students live in classrooms AFP News - 1 hour 17 minutes ago

    They turned classrooms at their children's college into dormitories, sleeping on the floor, but parents of 43 Mexican students missing since 2014 won't rest until they find them. Around 20 parents have made the teacher training college in … More »

  • European stocks dip at open AFP - 1 hour 18 minutes ago

    European equities lost ground in opening trade on Monday, mirroring losses across Asia, with London's benchmark FTSE 100 index shed 0.5 percent at 6,872.86 points. In the eurozone, Frankfurt's DAX 30 declined ... … More »

  • How Russia's central bank chief held the line Reuters - 1 hour 21 minutes ago

    One Thursday evening in March, Elvira Nabiullina, governor of Russia's central bank, faced down a rival in the struggle for influence inside President Vladimir Putin’s entourage. At a meeting chaired by Putin, Economy Minister Alexei Ulyukayev … More »

  • China Stocks Decline Most in Two Weeks as Volatility Resurfaces Bloomberg - 1 hour 23 minutes ago

    Hong Kong’s Hang Seng Index retreated 1.3 percent, paring Asia’s best quarterly performance. The sudden drop came after turnover on China’s equity exchanges fell to the lowest level in two years as a booming housing market and an equity rally … More »

  • PBOC Drains Most Funds in Six Months Amid Debt Curb Speculation Bloomberg - 1 hour 27 minutes ago

    The monetary authority has signaled that it wants to limit runaway borrowing, with Deputy Governor Yi Gang cited as saying that the goal is to bring down leverage ratio growth. The central bank has in the past month restarted the use of both 14- … More »

  • Scammers use Tony Fernandes' image to dupe victims in Facebook ads
    Scammers use Tony Fernandes' image to dupe victims in Facebook ads New Straits Times - 1 hour 35 minutes ago

    KUALA LUMPUR: If you’ve come across an advertisement on Facebook featuring AirAsia Group CEO Tan Sri Tony Fernandes urging you to discover his ‘secret’ to success, stop right there. AirAsia, in a statement today, said the sponsored ads on Facebook … More »

 
Recent Quotes
Symbol Price Change % Chg 
Your most recently viewed tickers will automatically show up here if you type a ticker in the "Enter symbol/company" at the bottom of this module.
You need to enable your browser cookies to view your most recent quotes.
 
Sign-in to view quotes in your portfolios.

MARKET MOVERS

  • Most Actives
    Most Actives
    NamePriceChange% Chg
    0.139+0.003+2.21%
    N21.SI
    0.735+0.015+2.08%
    BS6.SI
    0.141-0.002-1.40%
    5DM.SI
    0.265-0.005-1.85%
    5ME.SI
    0.121+0.003+2.54%
    A50.SI
  • % Gainers
    % Gainers
    NamePriceChange% Chg
    0.225+0.025+12.50%
    BTF.SI
    0.475+0.050+11.76%
    AWC.SI
    0.196+0.014+7.69%
    43B.SI
    0.60+0.04+7.14%
    BDR.SI
    0.62+0.04+6.90%
    BMT.SI
  • % Losers
    % Losers
    NamePriceChange% Chg
    0.39-0.09-18.75%
    BLL.SI
    0.31-0.06-17.33%
    AZT.SI
    1.145-0.215-15.81%
    P01.SI
    0.345-0.060-14.81%
    BLR.SI
    0.140.000.00%
    580.SI

Market Data

  • Currencies
    Currencies
    NamePriceChange% Chg
    1.3617+0.0036+0.26%
    USDSGD=X
    1.5306+0.007+0.46%
    EURSGD=X
    1.7619+0.0047+0.27%
    GBPSGD=X
    73.8430-0.279-0.38%
    SGDJPY=X
    5.6937-0.0118-0.21%
    SGDHKD=X
    3.0389+0.0121+0.40%
    SGDMYR=X
    9,598.2803-57.2529-0.59%
    SGDIDR=X
    4.8975-0.0091-0.19%
    SGDCNY=X
    1.0362+0.0012+0.12%
    AUDSGD=X
  • Commodities
    Commodities
    NamePriceChange% Chg
    1,338.30-3.40-0.25%
    GCZ16.CMX
    19.51-0.30-1.51%
    SIZ16.CMX
    95.76-3.02-3.05%
    ^XAU
    2.19-0.01-0.68%
    HGZ16.CMX
    43.85+0.41+0.94%
    CLV16.NYM
  • Bonds
    Bonds
    TreasuryYield (%)Yield Change
    1.15-0.02
    ^FVX
    1.62-0.02
    ^TNX
    2.34-0.01
    ^TYX