> Studies find that the average investor's return in stocks is much less than the amount that would have been obtained by simply holding an index fund consisting of all stocks contained in the S&P 500 index.
Given that many banks have gotten out of prop trading and are now shifting into "wealth management" shops (hey we lost all our money when we tried that game... why don't we try it with your money!) there's clearly a lot of effort to convince people otherwise... but the numbers don't lie.
Active management is subject to the same thing. Everyone hammers on the idea that "past results do not guarantee future returns" but that's all anyone ever looks at, what with it being very difficult to observe the future. Some active managers will be successful simply by luck. They'll tout their results and get more customers from it. And then eventually their luck stops and they'll revert to the mean, minus their fees. Because of the proportions involved, lucky managers will heavily outnumber those who are actually good at it (if there are any).
Just ask Japanese investors.
Or Chinese investors from 2007. They went sideways for eight years, and after their bubble deflates will likely see 20 total sideways years.
Or the Nasdaq from 1999 to 2012.
Point being, even the premise of index buying requires some smart timing or your returns - if any - will be extremely poor.
Or just investing a regular amount of new money on a regular schedule, which will even out the timing issues.
The unwritten context of "buy and hold an index fund" is that it's for retirement—people with 20, 30 or 40 years before they actually need the money. That's enough time to ride out swings in the market.
If you need the money to buy a house or start a company in a few years, keep it in cash.
Let's say I'm 30 and want to save for retirement and let's imagine these crashes keep happening at around the same frequency (every 8 years or so?). This means when I reach my retirement age I might have to wait around 8 years for the market to rebound if I'm not lucky enough to buy my shares on the bottom of the charts, right?
The reason I'm asking is because I keep reading about how an index fund will eventually, given time, be worth it, even with these frequent crashes of late, but when I'm 60 it might not be possible for me to wait for a better time to cash out, in particular given my country's (men) life expectancy of around 75. In my view, this doesn't seem as safe as it sounds but I might be missing something.
Let's pretend I have my own retirement fund as a savings acount at around 1%, a very slow but pretty much safe growth. This way I might end up having with a more stable outcome when actually retiring which I believe is what most people would be looking like. I hate reading a market crash could wipe out poor and middle class retirement funds and have a hard time understanding the point besides greed or lack of knowledge.
Again, I'm most probably the one with lack of knowledge on this, just sharing my doubt as a very very conservative investor, if at all.
http://www.bogleheads.org/wiki/Bogleheads%C2%AE_investment_p...
Unless you're able to make huge contributions, a savings account is unlikely to provide the funds you need for retirement.