Investing: Two ways to beat average returns

If you are serious about your financial future, you've got to be serious about investing. Enough has been said about that, so I won't belabor the point. But here's a financial maxim that can't be said enough…

Financial success comes from doggedly investing over a long period of time and finding ways to:

  • minimize risk so as not to lose what you have
  • maximize earnings so as to add as much as possible to what you have

When you read about the rock stars of investing such as Warren Buffett, Peter Lynch and others, you read about the billions they make because of the brilliant insights they have. If you compare yourself to them, it is easy to become disheartened and discouraged. “What chance do I have against those superstars, with their armies of analysts and billions of dollars to buy entire companies at whim? How can I possibly compete against people who move entire markets with a mere whisper?”

Then you read about people who lose money on what they thought were good investments, as well as Wall Street cheaters who trade on insider information or buy high-speed computers to trade ahead of “the little guy,” leaving ordinary folks no chance at all.

Let's just say there aren't too many people who think getting great returns from investing is a breeze. What makes it worse is that, even when you do all the right things and dodge the bullets, the progress seems so painfully slow that you might figure you'd be more successful trying to move a glacier.

The facts do little to convince otherwise. If you contribute $100 per month and achieve the average market rate of return of 8 percent per year, this is what you'll end up with:

You can see after 10 whole years (at the red dotted line), the bulk of your retirement fund consists of what you put in yourself. At 8 percent per year, there's not a lot in the line of earnings that gets added. In hard numbers, your contributions add up to $12,000, and the return adds another $6,300. Whoop-de-do. Ten years … that's a long time. Where were you in 2004? That long.

It's not until 15 years that the earnings start to exceed your contributions, and only after 20 years do you start cooking with gas, as the earnings become the major contributor to your retirement fund. At the end of 20 years, your contributions will add up to $24,000, but the cumulative earnings will have added around $35,000.

These numbers come from the mere contribution of $100 a month. You can use that as a multiplier for any contribution you think you can make accordingly. (For example, with a contribution of $400 per month, simply multiply the numbers in the previous two paragraphs by four.)

The 8 percent earnings number is a rough approximation of the average return of a stock index fund, net of the (small) fees such index funds typically charge. By now, you all know that the stock market, on which those funds are based, doesn't move up in a smooth line. In times like these, its return is much higher than 8 percent; but then, of course, there are the down times when the market drops. Over the long run, though, 8 to 9 percent seems to be the average number to use.

Time, in other words, is the pixie dust that brings magic to your contributions.

There are two morals to this story:

1. If you are younger than 40, you have the luxury of simply putting your money in a stock index fund and knowing you have a good chance of having something you can rely on when the time comes that you want to be financially independent (fancy word for “retire”). In other words, you can achieve your earnings with relatively low risk … if you are actually putting money away each month. If you're not, start now.

If you are putting away money diligently, you can stop reading this post, because you're good. (Of course, if you want to do even better, feel free to continue reading.)

2. However, if you're older and you didn't do the smart thing and start early, you don't have the luxury of a passive approach to investing anymore. There isn't enough time for the pixie dust of time to fatten up your retirement fund as you need. You need to roll up your sleeves and get to work. That's the bad news.

But there is good news.

Let me say at the outset that what follows will stir up controversy. All I ask is that you hear me out before pelting me with rotten tomatoes and other missiles of assorted ripeness.

As older readers might remember, I was over 50 when I woke up to the fact that I needed to get my butt in gear and do some catch-up investing. I did a lot of reading and research and a lot of experimenting. Here's the nutshell version of what I discovered.

The benchmark

John Bogle revolutionized the mutual fund investing world with his Vanguard S&P 500 stock index funds in the mid '90s when he demonstrated that any stock index fund will outperform 85 percent of all actively managed mutual funds (the things which populate most 401(k) plan menus) over any period of time. His predictions have proven true in the almost 20 years since then — so much so that a stock index fund usually is regarded as the best investment option available today.

But … think about that a little. The golden standard of high performance is … an average??? What's up with that? I'm not a rocket scientist, but simple math told me that an average usually means roughly half perform under that number, but there's another half out there performing better than that number.

Now, if almost all managed mutual funds (85 percent is close enough to all for the purposes of this discussion) fall below the benchmark of high performance (which, again, is only the average) then simple math says there has to be a plethora of investing opportunities which outperform that average. Given how many trillions are invested by actively managed mutual funds, there must be an equal number of trillions of dollars outperforming the average.

I dedicated my learning efforts to the proving of that proposition (and, of course, to benefiting from it).

Outperformers

Given how late I started, I knew the average return of 8 percent wasn't going to cut it for me. However, I'm an arch-conservative at heart, so I didn't have the stomach to take inordinate risks. That meant things like penny stocks, options, futures, and day trading were non-starters for me. I don't even like selling short. So I set out to see if there were any traditional ways in which to consistently earn more than that golden standard that is but an average.

There is. Actually, there are (as in, there are multiple ways to earn more than the S&P 500 average).

To be sure, none of them offer you the luxury of getting on with your life without spending a minute thinking about your retirement. In life, you get nothing for nothing, and all of these alternatives take a little work (not much, but not nothing, either). The way I explained it to myself is, “Hey, you spent enough time in your younger days being irresponsible. Now you have two choices: retire in poverty and work till you die, or spend some time and money to become at least reasonably good at investing. Neither is as nice as the option you could have had if you started investing early, but at least with some work you may be able to catch up. So, pick your poison.”

I grew up exceptionally poor, and the prospect of dying anything remotely approaching poor terrified me, so I chose the second option and I went to work learning all I could about investing.

That's when I discovered, much to my amazement and relief, that there are simple, repeatable ways to beat even Mr. Bogle's vaunted stock index average.

Two strategies emerge

You have two fairly safe strategies to beat the S&P 500 average over the long term:

1. Buy Berkshire stock. Berkshire has outperformed the market for as long as most of us have been alive. Critics will claim you shouldn't put all your eggs in one basket, but they overlook that Berkshire is not a single basket. It's more diversified than any two or three managed mutual funds out there combined: They own literally hundreds of companies in just about every business arena you can think of: Dairy Queen, railroads, mobile homes, insurance, and goodness knows how many other markets and industries. You can't get more diversified than that, not even in a mutual fund. They're almost as diverse as the S&P … but twice as profitable.

Buying Berkshire is an especially good option if you invest outside of a tax-advantaged retirement fund (IRA, 401(k), etc.) because they never declare dividends, so the profits accumulate tax free for you just the same.

I own no Berkies, and I have no affiliation with them, so I gain no benefit by recommending them. Let me be clear: This is not a simple stock recommendation — I never do those. This is a unique situation simply because the company has grown so big and diverse, it has practically become a mutual fund, and one that outperforms any standard you care to measure against it. You can't argue with facts: Anybody who bought this stock outperformed the S&P.

2. Buy a proven model stock portfolio. There are many out there. I happen to follow several from AAII (the American Association of Stock Investors) and Motley Fool. Here's a chart of one of the AAII model portfolios:

Image: AAII

The red line is what you get when you buy a stock index fund. Not bad, but …

I personally subscribe to AAII, which offers multiple portfolios, like the one above, for $29 per year. That's as close to a no-brainer as it comes in my humble opinion. I also subscribe to Motley Fool's Stock Advisor portfolio. It starts with $50 for the first year, but then goes up to around $300 a year. Model portfolios all cost money, but I've made that back tens of times over. (Again, no affiliation: I pay full retail and get nothing for recommending them. In fact, I'm not recommending them; I'm only saying those two worked for me, and there are plenty of others.)

Whichever strategy you choose, do not make the mistake of simply buying a stock or a portfolio. You're too late for a passive approach. You have to roll up your sleeves and take charge of your investments; you have to know what you are doing and why.

Fortunately for you, it isn't that hard. It just takes the commitment to do it, and then the diligence to stick with the commitment. There are plenty of free resources out there.

Critics, as I said, may take potshots at my approach. All I can say is that it has worked for me: the value of our investments more than quadrupled in less than five years once we got serious. Because we started late, our fund is still not in the millions of dollars, but it was enough to allow us to retire when we wanted to retire. Is the approach perfect? No. But it beats dying poor, which was my only criterion.

Catching up when you start late can't be done passively. But it can be done without undue risk. I think that's very good news. What do you think?

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Mr. Frugalwoods
Mr. Frugalwoods
6 years ago

I’m no tomato thrower, but I’ll go out on a limb here at say that if “anyone” could outperform the market average by subscribing to a couple of newsletters… then we’d all be doing it and the average would move 🙂 Berkshire is awesome. Warren Buffett and Charlie Munger are going to die soon. Do you or I know what will happen to that company in the 20 years after they pass? Might the future of the company be slightly more volatile? Maybe it will and maybe it won’t. I’d never bet against Munger and Buffett, but I might bet… Read more »

William @ Drop Dead Money
William @ Drop Dead Money
6 years ago

It’s rare that I respond to critical comments, but it seems a clarification might be necessary to avoid drawing a wrong conclusion. A few comments suggest I commit heresy by saying anything but index funds works. Not so; please allow me to clarify. First point: I agree, and the post agrees, that index fund investing is the best possible thing to do. (In fact, it says if you’re following that strategy, stop reading.) Second: This post was aimed at those who, for one reason or another, are “behind” in their retirement funding — plan B, if you will. If I… Read more »

Matt
Matt
6 years ago

“”There are strategies out there which have outperformed the market.””

Obviously, but what you’re oblivious to is that you can’t tell the difference between the ones that will in the future and the ones that won’t.

JRH
JRH
6 years ago

“Second: This post was aimed at those who, for one reason or another, are “behind” in their retirement funding – plan B, if you will.”

I confess I don’t understand the “catch up” argument. If it’s a way to consistently beat the market, why should only those who need to “catch up” do it?

William @ Drop Dead Money
William @ Drop Dead Money
6 years ago
Reply to  JRH

Because it costs money and takes time. And, it doesn’t offer the safety index funds offer.

Mike
Mike
6 years ago

You know what is so silly about this besides we all know that ” past performance is no guarantee of future results”: -Why would anyone pay for a model portfolio? Lets assume you are in a situation where you haven’t invested young and are over 50 and need to catch up? Model portfolios can’t guarantee you anything, on top of which your risk tolerance is already lower due to your age. If you want to retire in 15 years well can you lose half in year 14 of your investment performance? Frankly if you wanted to try to beat the… Read more »

nicoleandmaggie
nicoleandmaggie
6 years ago

I’m voting to get rid of William Cowie. This article is BS and dangerous.

Everything Mr. Frugalwoods says is correct. Research and economic theory backs him up on this.

At the very least, can we have Robert Brokamp’s next article be on why it’s stupid to think you can beat the stock market?

Matt
Matt
6 years ago

Why are you publishing this garbage? Past performance does not indicate future gains. Repeat over and over again. The same study that the author of this piece references also says that his own hand-selected investments are likely to be in the 85% of active portfolios that under-perform the indexes he’s trying to beat in the very next year. The problem with a stock market that’s up massively over the last 5 years is that every attributes their success to their own personal savvy in picking investments. On the contrary, pretty much everyone who invested in stocks consistently over the last… Read more »

Angie
Angie
6 years ago

This is exactly the kind of post I’d expect to see on a get-rich-quick site, not here. Disappointing.

Ross Williams
Ross Williams
6 years ago

” I’m not a rocket scientist, but simple math told me that an average usually means roughly half perform under that number, but there’s another half out there performing better than that number.” You aren’t very good at simple math either. That is the return of the market. Everyone can get that return. Do some people do worse? Yes, because they try to beat the average. Most of us invest our savings so that we can spend it in the future. The so-called superstars have no intention of spending the money they invest except on new investments. We have an… Read more »

William @ Drop Dead Money
William @ Drop Dead Money
6 years ago
Reply to  Ross Williams

“You aren’t very good at simple math either… The math tells us it will take 9 years at 8% to double your money.” Okay, I’ll bite, sounds simple enough. I’ll show you my math and you can show me yours. My math says a fund takes about fifteen years to double at 8%, not nine. After 9 years, it would have earned less than 50% of your contributions, as you can see here: http://bit.ly/20yrcalc. I’d be interested to see your math. Not all investments outside the S&P 500 are speculative. If you own dividend aristocrat stocks, your dividends go up… Read more »

KSR
KSR
5 years ago

I don’t think that one should judge so fast. I think Wm speaks to an alternative audience. There are certainly models out there that beat the benchmark, (http://seekingalpha.com/article/2616495-a-weird-all-long-strategy-that-beats-the-s-and-p-500-every-year-ii) and even in this upper echelon article you will find the unbelievers/people screaming heresy, even though the charts don’t lie. I’m sure someone subscribed and is feeling pretty smart right now–for how long depends on the next article of the subscription! It’s not for everyone, it takes an investment of time and it certainly is time sensitive. There is nothing wrong with taking the time to figure out more interesting forms of… Read more »

jon hale
jon hale
5 years ago

The math that says it takes 9 years at 8% per annum to double your initial investment is very simple 1.08^9 = 1.999.

The spreadsheet that you reference answers a totally different question. That question is “How many years will it take to have the earnings equal my total contributions when contributing a constant amount on a monthly basis at 8%?”

Emily @ Simple Cheap Mom
Emily @ Simple Cheap Mom
6 years ago

I’m happy I’m young and fall into category one. I’m glad this scenario has worked for you, but I’m in the camp that I’ll never try to outsmart the market.

1WineDude
1WineDude
6 years ago

One of the big issue with the second half of this post is the fact that index funds don’t return an average, at least, not exactly. They return the market return for their index components, net of fund expenses. Nobel-winning people have shown that this passive return will beat 70% or more of any active attempts to beat the index at the same risk level. The lesson for those seeking higher returns is not to go active or to think about average vs above-average, it’s to add risk. The end.

Ray
Ray
6 years ago

Let me pick at your logic about averages. First, you need to specify what type of average you are talking about: mean, median or mode. Mode is the most common data point in the set, not very useful here. Mean is what most people are referring to when they say average: add up all the data points and divide by the number of data points. Median is what you are assuming the S&P 500 is: a number such that half of the data points are below and half are above. Contrary to popular belief, the mean is NOT the same… Read more »

Walt
Walt
6 years ago

“If we both agree, one of us is unnecessary.” ~ M. Twain. I’m grateful for this post! GRS can get boring sometimes, especially when nothing new or “interesting” is being said. I may not get out of my index funds but I always appreciate hearing other perspectives and strategies. Great piece!

nicoleandmaggie
nicoleandmaggie
6 years ago
Reply to  Walt

So proven incorrect by more research than you could fit into a library is good for you so long as it’s interesting?

Bob
Bob
5 years ago
Reply to  Walt

Agree Walt. The constant repetition of articles sometimes reminds me of a cult. Let’s here some differing perspectives.

Linda Vergon
6 years ago

(This comment is from Joel, a reader of our daily newsletter.)

With all due respect, Mr. Lynch is far, far away from Mr. Buffett.

Best,

JOEL

patrick
patrick
6 years ago

It seems the one way to beat the market is to invest, in index funds/low-cost funds where things are trending. In other words, it doesn’t seem like a good time to invest in bonds. So, on the general trend for this period in time, you limit bond buying. I’m trying to figure out where to put the money where it will grow and be reasonably stable (aside from the S&P 500 investments. Some people are saying to not invest in bonds, but in high-yield dividend funds. You might be fully in stocks, but the high-yield fund companies are mature companies… Read more »

Beard Better
Beard Better
6 years ago

This article is just really irresponsible, and frankly disappointing to see on this site. Between this and the extremely poor tax calculations a few days ago, the level of content is just taking a nosedive. The best thing I can say is that this article is completely missing the point; the worst thing I can say is that it is dangerously misleading and reads like a poorly-hidden advertisement for get-rich-quick schemes. It’s all well and good that following these illogical investing strategies worked for you once, but that is only because you can look back in hindsight. There is no… Read more »

Marsha
Marsha
6 years ago

This is so backwards. If you’re behind on retirement, you can’t afford to take chances on riskier portfolios. If you’re young, time is on your side, so if you make a misstep or two, the damage is limited. In about 60 seconds, I can come up with much better advice to those who are behind: Save every penny you can and invest it conservatively. Downsize your lifestyle. Pay off all debt. Learn how to maximize social security and any pensions you may be entitled to. Try to stay as healthy as you can, so that your medical expenses will be… Read more »

Kristen
Kristen
6 years ago
Reply to  Marsha

I wish I could ‘like’ your reply about 12 times.
I’m all for reading articles on additional investment strategies once you’ve fully funded your retirement savings and if you have some ‘extra’ money that you can risk losing.
This felt a little bit like comment-baiting for this site in particular, but apparently it worked for me, b/c here I am commenting!

Komrad
Komrad
6 years ago
Reply to  Marsha

You’re hired!

mysticaltyger
mysticaltyger
6 years ago

Blech. It seems the investing blogosphere has been overtaken by dogmatic index fund purists! I’m not knocking indexing, but there is always going to be a minority of people who beat the market. Investors in individual stocks can probably do that better than mutual fund managers because they’re dealing with thousands or millions of dollars, instead of billions.

csdx
csdx
6 years ago
Reply to  mysticaltyger

Could you expand on your point? My understanding was that it was transaction costs that contributed to mutual funds to underperforming. So, given that trading fees are usually even more expensive for an individual trader, wouldn’t that make it worse rather than better?

mysticaltyger
mysticaltyger
6 years ago
Reply to  csdx

I’m sure there are ways to avoid high trading fees. Web sites like Kingtrade only charge something like $4, I think. It wouldn’t be what I wanted, but as the article says, this is for someone for whom traditional compounding at 8% isn’t going to work, anyway. You basically have to take more extreme measures if that’s the situation you’re in. I would say cutting back your lifestyle, trying to increase your income, and upping your savings rate is a better and more reliable way than buying individual stocks, but that’s just me. It doesn’t mean other ways aren’t possible.

Yvette
Yvette
6 years ago
Reply to  mysticaltyger

Interactive Brokers has the lowest commissions in the investing universe – About $0.005 per stock per trade. I write puts and calls to generate income and the commissions are usually $1.09 per contract versus $10+ at TD Ameritrade.

nicoleandmaggie
nicoleandmaggie
6 years ago
Reply to  mysticaltyger

What’s funny is that on average *less than 50%* of people “beat” the market. (The less than is because of all the additional trading fees eating into profits. Otherwise it would be exactly 50%.) In other words, random chance easily accounts for people beating the market.

I’m willing to believe that large investors with inside connections etc. have an advantage, but the average person is not in that situation, and by the time the average person gets that information, everyone in the know will have already acted on it, changing prices so the information is useless.

Beth
Beth
6 years ago

I think he’s confusing average with median? Average doesn’t necessarily mean there’s an equal number above and below.

Jussi
Jussi
6 years ago

Beating major indices is not as simple as the writer suggests. The simulated equity graph by AAII is NOT possible to achieve in real life. My vote would go for buying Berkshire Hathaway.

William @ Drop Dead Money
William @ Drop Dead Money
6 years ago
Reply to  Jussi

You are absolutely right: it certainly isn’t simple. I never suggested it is. If it was, everybody would do it. As to what’s possible in real life, I’ll leave that up to everyone to decide for themselves. It worked for me — very well, in fact. But it wasn’t without mistakes, and it wasn’t without putting in hours.

csdx
csdx
6 years ago

So I’m confused, aren’t model portfolios basically just telling you how to invest your money? How is this any different than a mutual fund except you’re expected to make the trades rather than have the fund manager do it for you? So why should anyone expect that model portfolios would have a better success rate of consistently beating the average than the 15% of mutual funds?

Basically I’m asking: How is buying a ‘proven’ portfolio any different than choosing which mutual fund to invest in by looking at their historic returns?

William @ Drop Dead Money
William @ Drop Dead Money
6 years ago
Reply to  csdx

Very good question. Actively managed mutual funds have costs, some visible and others hidden. When you manage your own investments, the costs are generally lower (depending, of course on how much you want to spend for the advice). Of course nobody can predict the future, but that holds true for the stock market as a whole, too. The way I look at it is if either a mutual fund or a model investment portfolio has outperformed the S&P over at least two recessions, I look at them seriously. In the end, it comes down to: if you want to play… Read more »

K
K
6 years ago

A new low for GRS.
I’m not going to repeat what 9/10 comments above have said, but I agree with them.

s
s
6 years ago

I think I found the point of the article: Index funds have the “predictable” return of 8% on average. He wanted better and did not have enough time. You can tell him to save all you want but he would still be short of his goal for financial independence. He chose more risk as a way to find more reward. It does work and it can fail. He did not want to be safe with bonds in his old age. That’s fine. Everyone has the right to buy a risky thing. They also have the right to make a million… Read more »

Komrad
Komrad
6 years ago

Horrible article. If you are really behind, go play the slots in Vegas!

KevinM
KevinM
6 years ago
Reply to  Komrad

Well, BlackJack anyway. At least at those tables if you’re counting you can reduce the odds against you.

ALR
ALR
6 years ago

Wow shocked by these comments. The herd mentality is disappointing. If you believe indexing is the only way to generate better than average returns then you’re basically saying you have no faith in company fundamentals to drive stock growth. In other words, you’re a conspiracy theorist who says that the market is a rigged game. That’s a pretty narrow and immature view. I’ve read “A Random Walk Down Wallstreet” and I’m indexing part of my portfolio but I’m also investing in dividend growth stocks and am interested in other strategies. Article after article about lifestyle inflation and investing 101 where… Read more »

nicoleandmaggie
nicoleandmaggie
6 years ago
Reply to  ALR

Herd mentality, or you know, research. Sometimes a well-educated crowd is right. (And a lot has changed since 1973 when a random walk came out, even if the basic idea of randomness is still sound.)

Stan
Stan
6 years ago

To all the readers – this article has a fundamental flaw. SP500 index fund is NOT the average. That is a fundamental lie in this article. Berkshire Hathaway is added intot he mix to add credibility. SP500 is a benchmark to check performance of active fund managers. There is no 50% “other” billions that outperform SP500. SP500 goes up BECAUSE so much money flows in it, BECAUSE 85% of the active fund managers suck ass and keep playing the little guy. Think of SP500 as a way to get B grade in college, but without performance curve (which americans are… Read more »

Edwin
Edwin
6 years ago

Pretty interesting stuff Mr. Cowie. I believe most of the reactions are a little overblown. Some of you people backlash against an actively managed portfolio because it challenges your mindset that the “right way” to invest is a portfolio of index funds. No where does Mr. Cowie says you shouldn’t invest in index funds he just writes about another way of how to invest where you might profit. There are exceptions to the rule like Warren Buffet, William Cowie, maybe Mish Shedlock from Sitka Pacific, Vanguard’s Wellington mutual fund etc. Don’t hate because someone is benefiting from actively managed investing.… Read more »

Bob
Bob
5 years ago
Reply to  Edwin

Hit the nail on the head – he doesn’t say this is the only way to do it. And providing advice, even alternative advice, is allowed. What I’m more surprised by is how this community wants to limit speech that doesn’t line up with what they want. Is it good advice, will it work for you? Those things we get to decide; not some “I’m offended” police/group think.

JaM
JaM
6 years ago

Thanks for sharing your experience and insight William. GRS had started as a personal finance blog and these are the kind of articles I come here to read, not articles like canning vegetables or if success if by chance! The path to success is paved with goals.

Dianecy
Dianecy
6 years ago

I’d like to see what that first chart looks like when extended out to thirty years. It will show how comparatively little one needs to save for retirement if they start early.
Given that the demographic of this blog tends to be significantly lower than 50, it would be much more valuable to teach younger people this truth than to show them how to game the system at much greater risk once they have waited too long.

William @ Drop Dead Money
William @ Drop Dead Money
6 years ago
Reply to  Dianecy

You’re absolutely correct: the chart looks wonderful — which is the reason it’s so important to start early: moral #1 above. The intent of this post was not to encourage people to delay and try to catch up later — if that’s what came across, I failed as the writer. The purpose was to offer something for those who are in their fifties or thereabouts to consider (option #2, not #1). I figured if it worked for me, it might be of value to others. (A good thing, for sure, that I didn’t read the comments before I did it… Read more »

Dianecy
Dianecy
6 years ago

I’m afraid I must not have made my point well enough. Most of the readers here are NOT over 50 and NOT in your position. I see yours as a cautionary tale. There are too many younger readers who mistakenly believe that they should kill all debt, including mortgage debt BEFORE they start saving for retirement. Unless they learn the error of this approach at an early age, they could very well end up needing “advice” such as yours, which would be 1) sad and 2) completely avoidable. #2 will always be a risk that did not have to be… Read more »

KevinM
KevinM
6 years ago
Reply to  Dianecy

It isn’t always ‘completely avoidable’. I was in great shape financially until my divorce, followed quickly by some health issues. After losing my house, losing my savings (trying to save the house), legal bills, alimony, and various other new and unexpected debts, I find that I’m 46 and starting from zero. I still don’t agree with the premise of the article, but I will say that it’s nice to hear some options other than ‘start saving when you’re 20, or you’ve missed the boat and will retire poor’.

ikomrad
ikomrad
6 years ago
Reply to  Dianecy

I can related. I liquidated my retirement savings not once, not twice, but three times to pay for emergencies. I’m on my fourth nest egg and my fingers are crossed that there are no more cancer treatments, floods, lawsuit’s, etc to deal with.

Old Guy
Old Guy
6 years ago

Gee, William. You shouldn’t have done what you did because it won’t work. At the very least, you shouldn’t have told anyone about it. Remember, this isn’t a Personal Finance blog, but a Mass Finance blog where what you say has to apply to the masses.

You should give the money you made with this strategy to the people who disagree with you as punishment for your poor judgment.

That’ll teach you.

nicoleandmaggie
nicoleandmaggie
6 years ago
Reply to  Old Guy

Risky strategies work out some of the time and they lead to unmitigated disasters the rest of the time. Pretending that past returns predict future returns is dangerous. Someone is always going to get lucky when taking on risk, that doesn’t mean everybody who uses the same strategy is going to be lucky. By definition of risk, most people are going to be unlucky. Risk means there’s a large upside, but there’s also a large downside. Given marginal utility, losses hurt more than gains help. That’s why rational educated people have to be compensated more to take on additional risk.… Read more »

Mr money
Mr money
6 years ago

This article is terrible. I’m going to take some time away from this blog.

boo
boo
6 years ago

Crap post, but hey anyone can proclaim themselves an expert on the internet. The author missing the distinction between average and median might be a giveaway that the information needs to be taken with caution. Thanks for the reminder as to why I stopped reading this blog years ago.

Linda Vergon
6 years ago

(This comment came from Larry, a reader of our daily newsletter.) Mr. Cowie, Interesting approach in this article. But your language is terribly inconcise. Tell us, not in platitudes and BS, but in precise ways via examples with actual numbers. Just as a small example, what is the symbol of Berkshire stock should we be interested in doing a little research? I thought Berkshire had several offerings. I was a member of AAII for a few years and found their information confusing and lacking in direct methods for achieving wealth. In your graph from them, you don’t mention what it… Read more »

jon hale
jon hale
5 years ago

This is the worst article that I have ever seen on this site!

Toyin Bello
Toyin Bello
5 years ago

I very much enjoyed reading this article, especially since im an amateur investor. Please keeep on posting more useful infromation on investing and making the most out of the money that we do have.

Thank you Toyin

JT
JT
5 years ago

The first comment says it all. This is a dangerous, misleading, poorly written and irresponsible article.

This is the kind of BS that makes the more educated readers un-bookmark this website.

All I can really say is that with every sentence I read with this article, I just shook my head, smirked, and became happier and happier that I have the knowledge (and common sense) to accept market returns and ignore the noise.

This is a great example of “the noise”.

JS
JS
5 years ago

I don’t think this is entirely BS, as I am outperforming the S&P by a good 50% on my very limited 401K. As an earlier poster said, the charts don’t lie, and the more you learn what the data in those charts really mean, the more you will be comfortable with knowing if and when to pull out. I merely followed a simple indicator and I have redistributed allocations 3 times in the past year and came out ahead. You can’t confuse this with day trading, which I think requires you to be at it full time, but you can… Read more »

Dave
Dave
5 years ago

Thank you for writing this article.

We need more ideas and alternatives rather then the same old “set it forget it” 15% in a 401k retirement plan and opening a Roth IRA.

Readers may disagree with this article but the whole point of getting control of your finances is to create your own financial plan that suits the needs of your own family. There is no right or wrong financial plan as long as it meets your needs and risk tolerance.

Adria
Adria
5 years ago

The biggest error in this article is the downplaying of risk involved in selecting a stock portfolio. Sure you might be lucky and beat the market but there is a very good chance you won’t. The author doesnt make this clear.

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