In the long run, this approach is likely to produce better results than trying to beat the market – which even pros tend to have a hard time doing.
Billionaire investor Warren Buffett demonstrated this by easily winning a bet that a simple S&P 500 index fund could beat a portfolio of hedge funds – supposedly the savviest investors out there, at least judging by the high fees they charge.
In the words of legendary investor Benjamin Graham: “The investor’s chief problem and even his worst enemy is likely to be himself.” Graham, who mentored Buffett, meant that instead of making rational decisions, many investors let their emotions run wild. They buy and sell when their gut – rather than their head – tells them to.
Trying to outsmart the market is akin to gambling and it doesn’t work any better than playing a lottery. Passive investing is admittedly boring but is a much better bet long-term.
But if you follow these guidelines and fasten your seatbelt, you’ll be able to ride out the current turbulence.
Alexander Kurov is professor of finance and Fred T. Tattersall Research Chair in Finance at West Virginia University. This article is republished from The Conversation under a Creative Commons license. Read the original article.