“Over a ten-year period commencing on July 1, 2020, and ending on June 30, 2030, a portfolio of index funds invested broadly in US and International equities will outperform a portfolio managed by a sophisticated individual investor selecting stocks and funds.” Detailed Terms »

Many individual investors believe that instead of hiring an advisor to help one manage their money, it is best for the individual investor to “do it yourself”, because the individual has a distinct set of advantages that can help outpace the market and even do better than professional money managers. One organization, the American Association of Individual Investors (AAII) was formed to help investors do just that. Its membership are some of the best and brightest individual investors in the country. While many individual investors are extremely smart with high IQs, when they attempt to invest on their own, they tend to do worse than stock market averages for several reasons. They often attempt to move in and out of investments based upon their “gut feel” or opinions about the near-term future. Since in the short term, stock market movements are random they tend to get it wrong more than right. Additionally, most investors fall prey to their emotions – both fear and greed. Studies show that these emotions, not sound investment decision-making and processes often drive them in and out of various investments at exactly the wrong time. Finally, the global stock and bond markets have become increasingly more efficient and the “information edge” that an individual could once exploit, has now largely been eroded. The individual or algorithm on the “other side of the trade” is generally much better equipped with the training, tools and software to make a better decision with respect to a particular security. Decades of research has proven that a better way to invest over the long term (10 years or more) is to simply own through a portfolio of index funds, US, foreign and developing country equities and real estate and to rebalance this portfolio twice per year. Investment luminaries such as Professor Burton Malkiel of Princeton (who serves on my firm’s Investment Committee) and John Bogle, founder of The Vanguard Group have promoted this way of investing since the 1970’s. Portfolio indexing removes these sources of investment underperformance, simplifies the process and captures market averages. Investors who follow this process will outperform most individual and professional investors. Thus we believe our portfolio of broad index funds will outperform a portfolio managed by a sophisticated individual investor. While a number of very smart people invest their own money, they are up against factors that often cause them to underperform the markets. At best, they are engaging in very expensive entertainment and at worst, gambling and jeopardizing a secure retirement.