Quote:
Originally Posted by jay santos
Instead of S&P I should have said a portfolio managed through modern portfolio theory--using index funds for each category--something as simple as:
50% Domestic (break out by large value, large growth, small value, small growth if you have enough to make it worth it)
30% International (ditto)
10% Real Estate/Commodities
10% Bonds
And I don't believe it's possible to beat it long term after costs. Long term = 30 - 50 years since that's the investment horizon for most on this board (should be time to death not time to retirement which is a big mistake some make).
I should say it's probably possible to beat this strategy long term after costs
BUT
the risk and probability of choosing the wrong portfolio manager is far greater than the reward you'll get above the index fund approach.
P.S. Five year returns mean ABSOLUTELY nothing to me. And ten year returns don't mean much to me at all.
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I have discussed the modern portfolio theory with someone in the investment world I have learned to respect a great deal. He showed me all sorts of facts and figures that indicated the modern portfolio thoery is bogus and meant for intellects to mentally masterbate with. However, to each his own and if someone wants to use that method, I would say go ahead.
I have found a lot of methods will work if they are stuck too. Emotion is the one element that comes in and messes with returns.
It is a proven fact investors in mutual funds do far worse than the funds they invest in. Why, it would be my contention they get in and out at the wrong times, because of emotion. I call it the "I can't take it any longer theory". I can't take seeing my investments go down in value any longer and therefor get out. Or, I can't take seeing the market go up any longer without me in and so they get in.
One thing I will agree with you on. I suspect you are saying don't put all your eggs in one basket. I would agree with you there.