It is possible to invest and relax without fretting over the ups and downs of the market. This 12-Step Program has explained the many advantages of passive indexing over active investing. An investor invests in peace of mind with this less stressful passive approach, which provides freedom from the anguish and panic of active investing. Indexing is not designed to be a quick fix and does not carry the seductive quality of gambling or day trading. This approach does not have the sizzle that the media likes for advertising, nor does it feed the adrenaline rush of chasing leads or returns. Active investing often leads to lost opportunity. Like most things of value in life, passive investing takes discipline and time to reap the rewards. It is the most intelligent and prudent way to build wealth over the long run. Indexing is a journey, a lifestyle, a process based on a solid academic foundation of empirical research. A quick review of the 12-Step Program substantiates the case for passive indexing by demonstrating the following:
• It is virtually impossible to beat a market over time through active investing.
• Indexing is backed by Nobel Laureates who have provided unbiased, rigorous, empirical research, most notably the Modern Portfolio Theory.
• Stock pickers are analogous to gamblers who rely on feelings and emotions when making their bets.
• Time pickers or market timers shift money in and out of different investments in order to profit from short-term cyclical events, which is a futile endeavor.
• Manager picking is not a reliable practice, because the past performance of money managers does not predict their future performance. Star money managers usually fall from their stature sooner or later, since their stellar performance is attributed to Lady Luck rather than skill.
• Style drift is detrimental to maintaining an efficient portfolio, because it changes the risk exposure of the portfolio. This is a problem when risk exposure has already carefully been chosen based on an investor’s predetermined risk capacity.
• Silent partners in active management diminish an investor’s wealth by eating large slices of the investment pie.
• Understanding riskese, the language used to discuss the relationship between risk, return, and time is essential to engaging in the ownership of risk.
• To achieve above average returns, assets must be exposed to above average risk over a long period of time because of the relationship between risk, return and time.
• Index funds are based on a long history of data dating back to 1926. A knowledge and understanding of this long-term historical data helps investors make intelligent decisions on portfolio asset allocation.
• Each investor has a personal risk capacity, a key component in choosing a portfolio.
• The mixture of indexes in a portfolio, or the asset allocation, accounts for one hundred percent of the variance of long-term return. Asset allocation is the most important decision an investor can make.
• The most efficient way to invest is to hold a portfolio comprised of globally diversified index funds.
• Dimensional Fund Advisors (DFA) offers the highest rated, most efficient and lowest cost institutional funds, now available to individual investors through Registered Investment Advisers.
The 12-Step Program to Index Funds has been written for investors who are engaged in any active investing practices, including stock picking, time picking, manager picking, or style picking, with the intent of educating and motivating the active investors of today to transform into active investors of yesterday.
This Program has provided research and education about the advantages of indexing over active investing. The information that has been presented shows clearly why index funds are best for achieving investors’ goals. With index funds, the stress and pressure of investing melts away, allowing the investor to receive the market returns of a diversified portfolio that is matched to risk capacity, all at a very low cost. Stepping off the emotional roller coaster of active investing, a recovering or reformed active investor experiences a new peace of mind. Instead of panicking, an index funds investor can now invest, relax, and go to the beach.
In order to invest, Index Funds Advisors would be honored to assist you. Because we have demonstrated our understanding of Modern Finance, we have been approved by DFA to purchase their mutual funds for our clients. These funds are not available directly to individual investors. They are designed and priced for large institutional funds. We think of it as an investment club for the "really smart money."
Through our custodians, Charles Schwab and Company and Fidelity Investments, we can purchase these funds for your brokerage or 401k account. We will need to speak to you, deliver the necessary documents to you, such as our ADV, and assist you in establishing an account with us. Each quarter we will review your portfolio and rebalance the asset allocations as needed. If you have any questions, please call us toll free at 888-643-3133.