Let's face it...investors love to buy and sell individual stocks. It's fun. They're constantly inundated with "hot ideas" by the financial media and their brokers. And they love to do their own research to uncover winners. The idea of owning Google, Apple and Amazon can be hard to resist.
Equally true, almost all investors holding stock portfolios have done well since 2009. It has been a great bull market.
So it has been easy to grow happy and complacent and forget about the simple fact that THE VAST MAJORITY OF THOSE INVESTORS HAVE UNDERPERFORMED THE OVERALL MARKET! Almost all would have been better off...albeit bored...simply owing an S&P 500 index fund!
Following is but a small sample of the commentary on this subject which has been generated over the years.
"The stock-picking mystique is so deeply entrenched in our financial culture that it feels like heresy to suggest that it is, on balance, dumb. The facts are clear, however. For the vast majority of investors—including professionals—stock-picking efforts waste both money and time."
"Stock-picking fund managers are even worse than we thought at beating the market...the S&P 500 outperformed more than 92% of large-cap funds over the last 15 years...active management clients may actually just be paying someone to shuffle their investments around!"
... Fortune Magazine
"University endowments, like many money managers, have a hard time beating the market. New figures show that these big investors missed the decade long rally in U.S. stocks by a long shot!"
February 2, 2020
"The body of evidence...some would say brute evidence...is so abundant as to defy substantive rebuttal. The facts are: (a) most professional managers fail to outpace appropriate market indexes, and (b) those who do so rarely repeat in the future their success in the past."
Chairman, The Vanguard Group
"There’s this idea out there, perpetuated by financial professionals and online “experts” alike, that if you take the right approach, do the right research, and put in the right amount of effort, you can pick stocks that beat the market. Their pitch is appealing. They make it sound like it’s pretty simple to beat the market if you have the right information and the right discipline. Unfortunately, most of it is garbage!"
..."The Simple Dollar"
"A blindfolded monkey throwing darts at a newspaper's financial pages could select a portfolio that would do just as well as one carefully selected by the experts."
Economist, Princeton University
"A Random Walk Down Wall Street"
"We continue selling what most of us have not delivered and, realistically, will not deliver...beat the market investment performance. Most investors have not yet caught on."
Founder, Greenwich Associates
CNBC's resident stock-picking "genius" takes investors down the drain! Video
"A low-cost index fund is the most sensible equity investment for the great majority of investors. By periodically investing in an index fund, the know-nothing investor can actually out-perform most investment professionals."
So it is easy to see why more and more institutional and individual investors alike have been moving into S&P 500 index funds.
But index funds also have a problem...they can crash and burn right with the market!