Rule #3: Don’t be a Performance Chaser
The SEC really nailed it when they required all mutual funds to prominently display: “Past performance is not predictive of future results.” Just because a fund was successful in the past doesn’t guarantee a lucrative return in the future. It’s that simple.
Of course, this doesn’t stop mutual funds from displaying their past results. Ignore them.
Curious to know what really predicts future outperformance? Fees.
Morningstar has done heaps of research that confirms over and over: the best predictor of long-term success is low fees. That’s why investors have been flocking to such low fee mutual fund firms as Vanguard and Dimensional Fund Advisors.
Rule #4: Embrace the Benefits the Market Provides
Many investors get caught up in the idea they can “beat the market.” It’s human nature to want to beat the odds. As one grad school finance professor said to me: “Despite all the evidence to the contrary, most investors still try to beat the market. I don’t understand it… maybe it’s because it feels un-American to settle for ‘average’ market returns, even though ‘average’ market returns have been quite stellar over time.”
You’re busy as hell. Don’t spend valuable time and energy trying to conquer and outsmart the market. Let the market work for you.