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A financial planner says most people don't need to pay someone to manage their investments.


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An index-based portfolio outperformed the actively managed portfolio 82.9% of the time.

How to do well with your investments with minimal effort:

Not only that, but the professionals typically underperformed by 1.25% per year. And the small number of professionals who managed to outperform the market only did so by 0.52% per year.

In other words, not only were there far fewer winners than losers, but the losers lost by much more than the winners won by.

Now, you could argue that a three fund portfolio is too simple and therefore not a fair comparison. After all, most investment professionals create more complicated portfolios in an effort to capture extra returns and limit the downside risk.

Luckily, Ferri and Benke looked at that scenario too.

What they found was that the more complicated you made the portfolio, the more likely it was that the index-based strategy would win. For example, when they looked at a 10-fund portfolio that included a wide range of asset classes, the index-based portfolio produced better returns 89.9% of the time.

And by the way, these were not isolated findings. Study after study has demonstrated the superiority of index funds over actively managed funds.

The big breakthrough here was the realization that combining index funds in a portfolio increases that advantage even further.

That finding has some pretty powerful implications for you as you create your own personal investment plan.

So now we know this: simple, index-based investment strategies outperform professionally managed investment strategies 80-90% of the time.

Most investment companies now offer all-in-one funds that are essentially an entire investment portfolio in a single fund.

For example, Vanguard offers its LifeStrategy Growth Fund that looks like this:

• 48% Vanguard Total US Stock Market Index Fund
• 32% Vanguard Total International Stock Index Fund
• 14% Vanguard Total Bond Market Index Fund
• 6% Vanguard Total International Bond Index Fund

With a single fund, you get access to the entire world of stocks and bonds. You never have to worry about rebalancing, since the fund does that for you. And the total cost is only 0.15% per year.

This is as easy as it gets. Literally all you have to do is find a fund that approximates your target asset allocation, set up automatic contributionsto that fund, and you’re done! You’ve created an index-based investment strategy that requires almost no ongoing work and, according to the research, has an 80-90% chance of outperforming the professionals.

You can find more Vanguard all-in-one funds here and here, and plenty of other companies offer them as well.

The big “but” here is to watch out for costs. Some of these all-in-one funds are more expensive than others, and since cost is the single best predictor of future returns, this is something you’ll want to pay attention to.

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