If you want to know how Clark has been successful at investing and how he’s taught others to do the same, you’ll need one simple piece of advice: Just be dull.
How to do better than 90% of other investors
People often respond emotionally to the markets and panic when they see their portfolios rise and fall with the ebb and flow of economic cycles. Or worse, they get excited about an investment that promises a huge return and when it goes down in value, end up forfeiting their hard earned money. Both of these approaches can set you up for huge disappointment.
But if you want to do better than 90% of other investors, you have to start thinking like the tortoise instead of the hare when it comes to investing.
It’s been 40 years since John Bogle began the Vanguard 500 Index Fund, which tracks the S&P 500 Index. As reported by MarketWatch, Mr. Bogle ‘believed that it would be difficult for actively managed mutual funds to outperform an index fund once management fees, operating expenses, sales commissions, taxes and portfolio transaction costs were subtracted from returns.’ So, he wanted to offer clients a highly diversified fund at a small cost that would garner them ‘a fair share’ of market returns.
People thought he was crazy. Since the fund didn’t perform well initially, it became known as ‘Bogle’s Folly.’ Critics claimed such a fund could never outperform the market. But now, 40 years later, the Vanguard 500 Index Fund and related funds comprise nearly 20% of all money invested in domestic stocks.
As a part of its recent year-end Indices Versus Active Fund Scorecard (SPIVA), Standard & Poor’s discovered that for the last 10 years, ‘82% of large-cap, 88% of mid-cap and 88% of small-cap actively managed domestic stock funds underperformed their S&P benchmark index,’ according to MarketWatch.
Additionally, for 10 years (ending October 31, 2015), Morningstar found that of the 4,993 actively managed funds it studied, just 205 (4.1%) outperformed their Vanguard index fund competitor.
This research coincides with John Bogle’s original groundbreaking philosophy: Providing investors with access to low-cost passively managed index funds with market returns is enough to help them meet their financial goals.
So why does conventional wisdom dictate that it’s always better to go with a fund manager? As MarketWatch points out, a lot of it has to do with good marketing, misinformation and greed. The companies that say they can offer you above-market returns will perform for a while, but eventually will not be able to perform at the same level over the long term. Additionally, you’ll also have to pay them their share of commissions and fees!
When it comes to investing, ‘Being dull as dishwater wins the race roughly 90% of the time,’ said Clark.
If you want someone to guide you in the investment process, Clark recommends finding a fee-only financial planner: Someone who does not make money off the financial product they recommend to you, and instead, makes money on the soundness of the advice they give you.
3 ways to be a dull (and successful) investor
Here are three ways to be a dull, but successful, investor:
- Set it and forget it: Choose passive, low-cost funds over active fund management. Here are some ways to get started!
- Choose total stock market index funds where you own thousands of large, medium and small companies instead of individual stocks.
- Educate yourself: Learn about investing from research and avoid learning about investing through fund advertisements and the news media, or even well-meaning coworkers, friends and family.
Though being dull may be seen as boring, there is a fun part to dull investing — all the money you’ll earn along the way!