During my time as a Financial Advisor, I slowly came to realize that which funds people invested in wasn’t really the biggest factor in determining their investment results. What mattered far more was how they invested.
During that time, I met several people who had been successful in building their fortunes via investing. Most of them had done it using mutual funds. Sometimes the funds they had used were run by the big companies that you’ve heard of. Many times they were not. Some of the funds had outperformed the market. Most had not. It often seemed like it didn’t even matter.
These people had all used different mutual funds, but they had all succeeded in building wealth.
At the same time, I met countless people who had invested in very high quality funds but had failed to accumulate any substantial wealth. Some of these people had in fact invested in the very same funds that the successful investors had used.
What was the difference?
The difference was in the way they invested. The story was the same with almost every successful investor I met: They had built their wealth slowly but steadily by dollar-cost-averaging into stock-based mutual funds.
The unsuccessful investors, however, had a multitude of different stories:
- Some had attempted to time the market, but failed in doing so.
- Some had decided (apparently incorrectly) that they could beat the market by picking stocks on their own.
- Some simply hadn’t invested enough money. They either waited too long to start investing, or they stopped investing too early, underestimating the savings they’d need for retirement.
- Some had jumped around from fund to fund every year, always buying the ones that had done well last year.
- Some had panicked after a market dip, cashing out their portfolios at a market low point, and not getting back into the market until they had already missed the market’s recovery.
What I took away from all this was that unsuccessful investors aren’t unsuccessful because they choose bad mutual funds. They’re unsuccessful because they do something wrong after choosing which funds to invest in.
In other words, success isn’t determined by the fund. It’s determined by the investor. This is a good thing, by the way. It means that all you have to do is choose a handful of good mutual funds. (Yes, “good” will do just fine. Looking for “perfect” is a waste of time.) Then spend the next several decades regularly putting money into them and refraining from doing something stupid. 
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{ 4 comments }
Nice Site layout for your blog. I am looking forward to reading more from you.
Tom Humes
Hi Tom. Thanks for the compliment.
Great points. I am a conservative investor who is all about dollar cost averaging and choosing something good and sticking with it. I think too many people focus on “sexy” returns and find that they are always moving things around and trying to find the next big thing.
Really, as you point out, there is no reason that one can’t do well by following a disciplined plan that focuses on solid fundamentals and regular (but kinda boring) returns.
“Some had jumped around from fund to fund every year, always buying the ones that had done well last year.”
Yes and they always buy at the top and sell at the bottom.
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