For example, if you invested in SPX in 1999, you would have a few years of up and a few years of down. If you blindly stayed in the whole time, you would just now be breaking even again:

http://www.ritholtz.com/blog/2010/12/buy-hold-vs-trend/

A great explanation for risk and return

Aside from Bogle, Bernstein (highly recommended)and Zweig, here’s another resource for the uninitiated…
http://www.marketwatch.com/lazyportfolio

I’m a CFP(R) and fee-only investment advisor. Since I started my own business four years ago, I’ve been shifting clients to index funds and ETFs. My reasoning is that the greatest determinants of a given portfolio’s performance are asset allocation and expenses.

Even the greatest investments, combined with poor allocation and high expenses, will lose to a well-diversified portfolio of index funds.

The talk about a “lost decade” and “buy and hold is dead” is media noise directed at the one-fund strategy.

A passive strategy, given a decent allocation, is often better than an active strategy to beat the market. That’s not to even speak about the time saved in using the passive strategy!

The advisor who wrote the book, The Investment Answer, is simply exposing the financial services industry for what it is–a sales-centered environment that makes more money using active investing strategies…

1) They are passive. I know people who got severely burned in the 2007-09 bear from complacent investing.

2) When I buy an index fund, I’m tied to every stock in the index. If I only would consider 50 of the 500 suitable for further review, why would I want an index fund.

Separately, the srticle slants perception by stating 2% for fees. If they shop around, investors can easily get far lower fees.

I have two index funds: one for my stocks and one for my bonds. I rebalance every quarter if necessary, and just add to those accounts.

Unless it in the context of why it’s not even worth trying.

“One advantage of index ETFs over mutual funds is that in a down market you can sell covered call options on your ETF brining in a nice little extra return – anywhere up to 2% a year.”

That’s only one side of the coin. Those options may be exercised and you may have to give up stock below market value, or you may only be able to close them out at a loss, either case costing you anywhere up to 2% a year or possibly more. The options market prices itself to eliminate the kind of easy money you’re describing.

You only HAVE to beat inflation, which is generally pretty easy to do. The other thing you should do is have a plan and follow it. If your plan for retirement includes only having to average 4% growth over 30 years, you’ve got a statistically excellent chance of making it, even if you don’t beat the market. If your plan includes having to average 10% growth over 30 years, there’s a chance you may not make it, even if you beat the market every year. I recommend fee-only advisors (like Dylan, above) but if he starts talking about beating the market, walk away.

But back to indexes: Malkiel explains in surprisingly easy-to-understand detail how a basket of risk-diversified stocks rapidly approaches the market portfolio, thus arguing in favor of an index fund. He also points to several studies that show how trading activity reduces returns time after time, also arguing in favor of an index fund.

http://www.businessinsider.com/warren-buffett-has-not-generated-any-alpha-in-10-years-2010-10

I don’t like index funds for a couple reasons:

1) you are guaranteed to hold losers too long
2) when people hear index fund they think “I’m diversified!”, but almost 20% of the VFINX fund linked above is made up of 10 stocks
3) sometimes you can actually get lower expenses buying individual stocks or ETFs

I also suggest “What Works On Wall Street” — check this out at the library, it isn’t really a book to read but an overview of several hundred investing strategies.

I fired him and went to mutual funds. A good chunk is in the S+P 500 vanguard fund and I couldn’t be happier.”

The difficulty of outperforming the market has nothing to with state of the market, i.e. a bull or bear market does not change the odds of outperforming. It’s always an equally hard thing to do!

I’m a financial advisor and my investment advice will never out perform markets, ever. I say, get as close as you can by using ultra low-cost index funds.

Guess what…Vanuard 500 fund has underperformed the S&P 500 in bull markets too. But thats not a bad thing either.

Completely agree, over time study after study has shown that index funds produce higher returns with lower volatility (that is, less bouncing around – the statistical measure of risk) than actively managed funds, with lower hassle (not just costs). You don’t even need an advisor, just a low-cost brokerage account and some routines/self-discipline.

I agree, it’s best to check your portfolio regularly. One hint: in most cases, it is cheaper to “rebalance” by shifting where you invest new money, not by selling and moving existing holdings.
That is, if your target is 40% bonds and 60% stocks, but bonds have outperformed stocks so your actual current balance is 50% bonds/50% stocks, it may make more sense to temporarily boost the dollars you invest in stocks (and trim or even eliminate for a short while the money you put in bonds) until you get back to 40% bonds/60% stocks.
That way you don’t have to pay any extra fees (in this case, fees to sell some of your bond holdings, and purchase stocks) vs. what you would normally pay.
In practice, rebalancing more than once a year is usually overkill, and shifts of less than 5% in either direction (some argue 10%) are not necessarily a compelling reason to rebalance.