Stages
of Investing
"I
manage people's money. Until they don't have any."
-- Woody Allen
There
are predictable passages that people go through in their investment
life.
Stage One:
Active Management
First, a broker
calls. Or, you invest in stocks on your own, following some newsletter
or guru. All those nice people we see on CNBC -- they must know
something, right?
According to
a study by FundExpenses.com,
from 1998 through 2002 mutual fund investors spent $120,000,000,000
purely on stockpicking expertise that lost them in aggregate 34%
of their money.
Perhaps you
are a high-net worth investor with a 'platinum' account at a prestigious
bank or brokerage house.
There's a saying
from poker that applies: "If you don't know who the mark is
after 30 minutes -- it's you."
Stage Two:
S&P 500 Index Investing
Instead of siphoning
your money to the financial services industry, you buy
an S&P 500 Index fund.
Congratulations!
You own a tax-efficient, low-expense, diversified investment. The
following table from John Bogle shows how much your performance
improved by owning the S&P 500 Index vs. the average actively-managed
mutual fund from 1980-2005.

After inflation
and expenses, the S&P 500 investor earned 9% annually, versus
just 4% for the typical fund investor.
If you own the
'Couch Potato' portfolio (50% Total Stock Market Index, 50% Total
Bond Market Index), you will likely outperform the majority of active
investors on a risk-adjusted basis over the long run.
Even better,
if you are looking for a terrific investment strategy (and can't
afford Conservative Wealth Management LLC's usual one million dollar
minimum), consider Scott
Burn's "Margarita" Portfolio: 1/3 each of Vanguard
Total Stock Market Index (VTSMX), Vanguard Total International Stock
Market Index (VGTSX), and Vanguard Inflation-Protected Bonds (VIPSX).
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