Taylor Larimore wrote:
After a lifetime of investing since 1950 trying to "beat the market," I am convinced that a simple 3-fund (or ETF) portfolio of Total Stock Market, Total International, and Total Bond Market, properly balanced, is an ideal portfolio for most investors. The advantages are many:
* Maximum diversification with over 10,000 worldwide securities (lower risk).
* No worry about under-performing the index.
* Very low-cost (including hidden transaction costs).
* Very high tax-efficiency (converts tax-inefficient stocks to tax-efficient stocks).
* No manager risk.
* No style drift.
* No sub-index "front-running."
* Simple to understand and maintain.
* More time with family and friends.
* High probability of outperforming most funds. Morningstar's 15-year Category Performance (12-31-2011):
TOP 29% = Vanguard Total Stock Market
TOP 16% = After tax.
TOP 35% = Vanguard Total International
TOP 19% = After tax
TOP 25% = Vanguard Total Bond Market
TOP 20% = After taxAddendum:
* Place Total Bond Market in a tax-deferred account.
* In taxable accounts, high-income investors may substitute a tax-exempt bond fund for Total Bond Market.
* Larger portfolios may
benefit from adding TIPS, REIT, or a Small-Cap Value fund in tax-deferred accounts.What experts say:
American Association of Individual Investors: "It should come as no surprise that behavioral finance research makes a strong case for buying and holding low-cost, broadly diversified index funds."
Christine Benz, Morningstar Director of Personal Finance: "A single, broadly based index fund can give you exposure to the whole stock or bond market, enabling you to build an entire portfolio with just one or two funds."
Bill Bernstein: "If you own VTSMX with a bit of foreign and REIT, mixed with your bonds, you're most of the way there."
Jack Bogle: "The beauty of owning the market is that you eliminate individual stock risk, you eliminate market sector risk, and you eliminate manager risk."
Warren Buffett: "I will take the market return and be happy with it, because I know the odds of beating the market over my investing lifetime are slim."
Scott Burns, columnist, author: "The odd are really, really poor than any of us will do better than a low-cost broad index fund."
Andrew Clarke, author: "If your stock portfoliio looks very different from the broad stock market, you're assuming additional risk that may, or may not, pay off."
John Cochrane, President American Finance Association: "The market in aggregate always gets the allocation of capital right."
Jonathan Clements, author: "If you want a surefire strategy for outpacing most other U.S. stock investors, simply shovel money into an index fund that tracks a broad U.S. market index such as the Wilshire 5000 or the Russell 3000."
Prof. Eugene Fama: "Whether you decide to tilt toward value depends on whether you are willing to bear the associated risk...The market portfolio is always efficient...For most people, the market portfolio is the most sensible decision."
Paul Farrell, CBS: Where does Fama invest his retirement money?" In index funds. Mostly the Wilshire 5000."
Rick Ferri, author: "For 99% of the the investing population, I still recommend total stock and total bond market index funds."
Graham/Zweig, authors: "The single best choice for a lifelong holding is a total stock-market index fund."
Alan Greenspan: "Prices in the marketplace are by definition the right price."
Sheldon Jacobs who wrote the first book on no-load fund investing: "The best index fund for almost everyone is the Total Stock Market Index Fund.--The fund can only go wrong if the market goes down and never comes back again, which is not going to happen."
Lawrence Kudlow, CNBC: "I like the concept of the Wilshire 5000, which essentially gives you a piece of the rock of all actively traded companies."
Prof. Burton Malkiel: "I now believe the best general U.S. index to emulate is the broader Wilshire 5,000 Stock Index--not the S&P 500."
Bill Miller, famed fund manager: "With the market beating 91% of surviving managers since the beginning of 1982, it looks pretty efficient to me."
E.F.Moody, author, advisor" "I am increasingly convinced that the best investment advice for both individual and institutional equity investors is to buy a low-cost broad-based index fund that holds all the stocks comprising the market portfolio."
Motley Fools: "Invest your long-term moolah in index mutual funds that are designed to track the performance of a broad market index."
Jane Bryant Quinn, author and syndicated columnist: "The dependable great investment returns comve from index funds which invest in the stock market as a whole."
Pat Regnier, former Morningstar analyst: "We should just forget about choosing fund managers and settle for index funds to mimic the market."
Ron Ross, author: "Giving up the futile pursuit of beating the market is the surest way to increase your investment efficiency and enhance your financial peace of mind."
Gus Sauter, "I think a very good way to gain exposure to the stock market is through the Total Stock Market Portfolio on the domestic side."
Bill Schultheis, author: The simplest approach to diversifying your stock market investments is to invest in one index fund that represents the entire stock market."
Charles Schwab: "Only about one out of every four equity funds outperforms the stock market. That's why I'm a firm believer in the power of indexing."
Chandan Sengupta, author: "Use a low-cost, broad-based index fund to passively invest in a little bit of a large number of stocks.
Prof. Jeremy Siegel: "For most of us, trying to beat the market leads to disastrous results."
Ben Stein: "Scholarly work by Burton Malkiel, Eugene Fama and others has proved that it is the rare investor indeed who can outperform the overall market."
"Robert Stovall, investment manager: It's just not true that you can't beat the market. Every year about one-third do it. Of course, each year it is a different group."
Larry Swedroe, author: "Over the last 75-years, investors who simply invested passively in the total U.S. stock Market would have doubled their investment approximately every seven years."
Peter D. Teresa, M* Sr. Analyst: My recommendation: a fund that indexes the entire market, such as Vanguard Total Stock Market Index."
Jason Zweig of Money magazine: "I think a total stock market index fund is not only the simplest, but the very best core investment for most people.
Warren Buffett, famed investor: "There seems to be some perverse human characteristic that likes to make easy things difficult."
Happy New Year!