3. Invest in Index
Everyone is trying to outsmart each other in the stock market. Why? It is only when you outsmart others that you can get the most return. But there are two problems with this strategy. The first is that it is difficult. Obviously, outsmarting another smart person is tough enough, let alone trying to outsmart the rest of the world!
The second problem is ‹effort›. Is the effort put into outsmarting every one translating to investment returns that justify it? Imagine having to clock in double the hours into research to only get a 5 percent increment in investment return. For years, many top funds have spent effort and money in hiring the best talents that they can get their hands on.
In Bogle's Words
Yet, 80 to 90 percent of these funds did not manage to beat the market (e.g. benchmark index like STI, DJIA, Nasdaq). If you need some more evidence to convince you, check out the Warren Buffett (pictured above) challenge. The index fund that Buffett chose beat the hedge fund portfolio hands down.
All Buffett had to do was to pick an index fund he liked and invest in it. So, in Bogle’s words, why not just invest your money in the index rather than relying on the stock-picking skills of fund managers (or yourself)?
