Core principles backed by research
1. Own the market
Broad, low-cost index funds outperform 85%+ of active managers long-term
Research:
SPIVA reports consistently show active fund underperformance after fees
2. Lower costs
Fees and taxes compound against you over decades
Research:
Morningstar studies show expense ratio is the best predictor of fund performance
3. Automate
Systematic investing removes emotion and timing errors
Research:
DALBAR studies show average investor underperforms market due to poor timing
4. Behavior > brilliance
Avoiding panic selling beats trying to pick winners
Research:
Nobel Prize research shows behavioral biases destroy returns more than bad picks
5. Time in > timing
Missing best days drastically reduces returns
Research:
Missing the 10 best S&P 500 days over 20 years cuts returns in half
6. Stay diversified
Broad exposure reduces risk without sacrificing returns
Research:
Modern Portfolio Theory shows diversification is the only "free lunch"
The evidence for passive investing
SPIVA Scorecard Results
| Time Period | % of Active Funds Beat Index |
|---|---|
| 1 Year | ~35% |
| 5 Years | ~20% |
| 10 Years | ~15% |
| 20 Years | ~10% |
The longer the period, the fewer active funds beat simple index investing.
Historical market performance
S&P 500 Rolling Returns
Time dramatically improves your odds of positive returns.
The cost of market timing
| Scenario (1993-2013) | Annualized Return | $10k Becomes |
|---|---|---|
| Stayed invested | 9.2% | $58,352 |
| Missed 10 best days | 5.4% | $28,723 |
| Missed 20 best days | 2.5% | $16,505 |
| Missed 30 best days | 0.1% | $10,197 |
Practical long-term workflow
The Simple System
- Choose a simple portfolio
- • One-ticket: Target-date fund or balanced fund
- • Three-fund: US/International/Bonds
- • Two-fund: Total world stocks + bonds
- Automate contributions
- • Set up automatic transfers from checking
- • Auto-invest in same funds every time
- • Enable dividend reinvestment
- Set rebalancing rules
- • Annual rebalancing or ±5% drift bands
- • Use new contributions first
- • Rebalance in tax-advantaged accounts
- Review once per year
- • Check allocation drift
- • Increase contribution if possible
- • Otherwise, ignore daily noise
Behavioral rules for success
During Bull Markets
- • Don't get overconfident or chase hot sectors
- • Stick to your rebalancing plan (take profits)
- • Resist urge to become more aggressive
- • Keep contributing consistently
During Bear Markets
- • Don't panic sell (hardest rule to follow)
- • Continue regular contributions (buy low)
- • Avoid financial news/social media
- • Remember: this too shall pass
Always
- • Focus on savings rate, not investment returns
- • Increase income and reduce expenses
- • Stay diversified globally
- • Trust the process and compound interest
The power of compound interest
Einstein's "8th Wonder"
Starting at age 25:
- • $500/month for 40 years
- • Total contributions: $240,000
- • Final value at 7%: $1,310,000
- • Growth: $1,070,000
Starting at age 35:
- • $500/month for 30 years
- • Total contributions: $180,000
- • Final value at 7%: $612,000
- • Growth: $432,000
Starting 10 years earlier with the same monthly amount results in $698,000 more!
Frequently Asked Questions
What return should I expect long-term?
No guarantees, but US stocks have averaged ~10% before inflation since 1950. Plan conservatively for 6-8% after inflation.
When should I change my investment strategy?
Only after major life changes (marriage, kids, job loss, nearing retirement)—not because of market headlines or performance.
How do I stay motivated during 20+ year journey?
Focus on the process (saving rate, automation) not daily results. Celebrate milestones like first $10k, $100k, etc.
Should I try to beat the market?
The evidence says no. Even professional fund managers struggle to beat index funds consistently after fees. Focus on saving more instead.
Remember This
"Time in the market beats timing the market. Your behavior matters more than your brilliance. The best investment strategy is the one you can stick with for decades."