Investors always have a choice to make. Are they going to try to beat the market's returns, or will they accept the returns the market has to offer?
We don't look at it as too difficult of a decision. The chances of outperforming the market are slim. As wealth advisors, we think about this a lot. So, why wouldn't we want to put the odds in our clients' favor? That's why we utilize funds that closely track the market's returns instead of trying to predict which funds might do better.
Why are we so confident in our approach? It's a quite simple answer: Research. Decades of academic studies confirm that few "active" investors, those that actively try to beat the market, actually do so.
We're pleased to share some of Dimensional Fund Advisors' latest thinking on this topic. Dimensional's 2021 Mutual Fund Landscape shows that only a small percentage of US-based funds* have outperformed industry benchmarks after costs—and among top-ranked funds based on past results, only a small percentage have repeated their past success.
The link to the video below provides a quick summary of the report.
*Mutual funds managed by US-based managers, including funds investing in international stocks.
David Rappaport, CFP®
David is the Co-Founder and Chief Investment Officer of Rappaport Reiches Capital Management. He acts as personal CFO to entrepreneurs and corporate executives, providing organization and clarity in their finances. Please connect with David below. He loves to talk about investing, financial planning, and Aspiritech, a non-profit hiring individuals on the autism spectrum.
The author does not intend to provide investment, legal or tax advice as these materials are for general educational purposes only. Please consult your legal, tax or investment professional for advice on your particular situation. This material is derived from sources believed to be reliable, but its accuracy and the opinions based thereon are not guaranteed. It is not intended to be a solicitation, offer or recommendation to acquire or dispose of any investment or to engage in any other transaction. Investing involves risk including the possible loss of principal. Past performance does not guarantee future results. Please refer to RRCM’s Form ADV Part 2 for additional disclosures regarding RRCM and its practices.