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The Case for Simple Investing

It’s not very often that the best way to do something is also the easiest. However, investing is one of those things. The more you fiddle with it the worse your returns are likely to be. Which is really great news. It means the average busy person with limited investment knowledge can still do great in the markets.

The Case for Simple Investing“October. This is one of the peculiarly dangerous months to speculate in stocks. The others are July, January, September, April, November, May, March, June, December, August, and February.” – Mark Twain.

I have some advice that might upset you. If you want to be a better investor:

  • Stop trading stocks on your iPhone and turn off CNBC.
  • Buy a few low-cost mutual funds that track the overall market. If you must buy stocks, listen to Warren Buffet: “Only buy something that you’d be perfectly happy to hold if the market shut down for ten years.”
  • Put money in religiously, whether the market’s up or down.
  • Diversify for your age and investment goals.
  • Then rebalance annually.


This advice is simple. It’s easy-to-follow. And it’s effective. If you invest this way, in 20 or 30 years you’ll have better returns than your friends who will have spent weeks of their lives combing through boundless torrents of data in futile attempts to beat the market.

Why don’t hear this advice more often? Because nobody makes money giving it.

If magazines advised it, they couldn’t sell issues with headlines like 10 Hot Stocks to Buy Today!

If financial advisors advised it, they couldn’t peddle actively-managed mutual funds with 2.0% expense ratios (meaning big paydays for the advisor and fund manager and returns that are certainly not certain to beat the market).

Don’t want to take my word for it? That’s OK. I’ve got some backup…


The recent book The Investment Answer is the work of two successful money managers, Gordon Murray and Dan Goldie, CFA, CFP. The book was featured in a Nov. 2010 New York Times article, “A Dying Banker’s Last Instructions”. (Mr. Murray wrote the book following a diagnosis of glioblastoma, an aggressive brain cancer; he died January 20.)

A mere 78 pages long, I read the The Investment Answer while stirring dinner and rocking my six-month old daughter to sleep. In that brief time, I came to two conclusions:

  • Everybody should read this book.
  • Most people may never have to read another investing book.

That said, I’ll warn you—you won’t learn much more than I just told you. (You’ll just hear it from two guys slightly more qualified than me.) But hopefully, you’ll put the book down knowing with absolute confidence that the BEST way to invest is also the EASIEST way.


We’re not computers, we’re human. However intelligent we are and rational we try to be, eventually, our emotions get the best of us. Here’s an example from The Investment Answer:

…[O]ur own natural instincts can be our own worst enemy when it comes to investing. This is illustrated in an annual study conducted by Dalbar, a leading financial services market research firm that investigates how mutual fund investors’ behavior affects the returns they actually earn. Figure 1-1 sows data from the most recent Dalbar study covering the 20-year period ending in 2009:

The average stock fund investor earned a paltry 3.2 percent annually versus 8.2 percent for the S&P 500 Index.

The average bond fund investor earned only 1.0 percent annually versus the Barclays U.S. Aggregate Bond Index return of 7.0 percent, and

What is perhaps most remarkable and unfortunate is that the average stock fund investor barely beat inflation, and the average bond fund investor barely grew his money at all.

Average Investor vs. Markets

Average investor returns versus the market indices, 1990-2009.

To be a successful investor, you must remove human behavior. The way to do that is to:

  • Stop YOURSELF from buying and selling different investments and
  • Invest in FUNDS that aren’t constantly trading, either.

Want MORE examples of how behavior gets in the way of successful investing? Check out Carl Richards’ The Behavior Gap. Richards draws weekly sketches for the NYTimes.com depicting how our human behavior interferes with rational financial decision making. His entire gig started with this one simple sketch:

Carl Richards' The Behavior Gap.

©Carl Richards/The Behavior Gap.

What do you think? Are you a buy-and-hold investor? Do you disagree? Can a savvy investor or fund manager beat the market in the long run? Share your thoughts.

Need 1-on-1 advice? Learn how to find pre-screened financial advisor in your area here.

Published or updated on March 15, 2011

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About David Weliver

David Weliver is the founding editor of Money Under 30. He's a cited authority on personal finance and the unique money issues we face during our first two decades as adults. He lives in Maine with his wife and two children.


We invite readers to respond with questions or comments. Comments may be held for moderation and will be published according to our comment policy. Comments are the opinions of their authors; they do not represent the views or opinions of Money Under 30.

  1. Nancy says:

    I am paying approximately 1% in fees for my ROTH IRA, is that too much?

  2. Steven says:


    Completely agree with the main points of your posting, but there is one big inconsistency. You claim no financial advisor gives this advice. Yet you then quote from Dan Goldie’s book. Dan is a financial advisor giving this advice to his clients.
    Furthermore, he is not the only one. This is exactly the advice my firm (www.investsimply.com) offers to clients. I particularly agree with your suggestion to continually add money to your investment portfolio. Not only is a disciplined savings program essential for building wealth, but (as was pointed out above) it allows you to buy into undervalued asset classes without selling out of other investments and incurring transaction costs and capital gains.

    • David Weliver says:

      Thanks for your comment Steven.

      I did claim that “nobody is making money” on this kind of advice which, as you point out, isn’t accurate. My intended argument is there is more money to be made (or perhaps easier money to be made) by the investing advising and media industries in promoting frequent trading even when it may not be in investors’ best interest.

      As the authors of this book point out, following this strategy does not necessarily mean investing alone and they do, in fact, recommend investors work with an advisor that shares this philosophy. I would agree.

  3. Fred says:

    Turning off CNBC is soooooo true. At times one can be talked into or out of a position.

    Another cool option is to check the fundamentals and charts of tickers. These two tools can help you back test and actually see the funds/stocks performance.

  4. Steve says:

    Just started down the ING Sharebuilder experience. Will be documenting the process, starting here…


  5. Mike says:

    Another longer book that I’m in the midst of is called “The Bogleheads” and it basically reiterates the same thing. All the research points to index fund investing – great post!

  6. Shaun says:

    I’m a huge, huge, huge fan of this article. I’ll be picking writing an article similar this week, and I’ll make sure to include a link back here.


  7. Kathryn says:

    Interesting, I read a post over at TFB which I’m sure you saw, on the dalbar study. When they use 3 years of returns, the outcome is the opposite of what you show above (and it’s very misleading I’d say). Anyway…when looking at longer term it shows that investors shouldn’t even be picking funds, we should be buying index funds or ETFs…or did I miss something?

    • Brian says:

      Picking funds doesn’t mean you can’t pick an index FUND. Actually, I’m 99% sure he means picking index funds. There are a variety of them to choose from.

    • David Weliver says:

      I didn’t get into the ETF vs mutual fund debate here ’cause it deserves a post or two on its own…but “index fund” doesn’t have to mean ETF; it’s quite possible to find mutual funds that index markets or sectors…the Vanguard Total Stock Market Index (VTSMX) is just one great example.

  8. David Kassa says:

    @Des – I think the point is that you picked that stock allocation for some specific reason. If it gets all whacked out, you are not actively investing in what you want.

    I’m very interested in the statistics you mention.

    • Des says:

      David – I read it in an e-book by Jim C Otar called “Unveiling the Retirement Myth”. I’m all for seeing a rebuttal to it, since I can’t say I blindly trust material self-published on the internet. But it is the only real data I’ve seen on the subject.

  9. Brian says:

    I do put most of my money in a few funds. However, I do occasionally buy individual stocks when I think the value is right.

    It isn’t often, but I will invest a small (relative to my total investment portfolio) in specific stocks.

  10. Des says:

    I’m interested to see the study that shows that rebalancing every year is beneficial. I saw statistics from one evaluation that showed that rebalancing that often reduce the overall return in most instances. The only interval that increased returns was rebalancing every 4 years on the presidential election year. I know annual rebalancing is praised often, but I have never seen anyone prove why.

    • Brian says:

      I dislike annual rebalancing, as it requires selling of some assets to purchase others, thereby (usually) incurring capital gains and therefore more tax.

      My preferred method of rebalancing is with new money. i.e. Assume my ideal allocation is 50% in fund X and 50% in fund Y. If fund X has risen (or Y fallen or a combination thereof) and fund X now comprises 60% of my investment assets, I will divert my future deposits into fund Y until it catches up.

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