With the stock market experiencing a steep decline of late, many investors are questioning how best to invest in this asset class for the long term.
There are three ways to invest in the stock market.
1. Select individual stocks yourself.
2. Hire a professional stock picker to pick stocks for you.
3. Invest in a low cost index fund or passively managed fund that mirrors the returns of its respective index.
Because capital markets are fairly efficient, professional stock-pickers have historically had a difficult time outperforming a comparable benchmark. According to SPIVA, over the past ten years ending June 30, 2019, 87% of domestic large cap, actively managed funds under-performed the S&P 500 index.
For Coffeehouse Investors, common sense wisdom suggests you are better off approximating the stock market average through low cost index funds and passively managed funds.