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Today’s investment professionals use historical references all the time.  Although they know that past performance is no guarantee of future returns, there is a lot of knowledge that can be gained by looking into the past. For the average investor, the past 50 years of investing research has actually taught us a lot.

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This is a guest post from Bo Lu, CEO of FutureAdvisor, a fee-only registered investment advisor.

Low Cost Index Funds Work

In today’s investing environment, consumers have the upper hand.  There is a war going on between low cost brokers, and they are fighting for your investment dollars by offering more attractive fees and services.  In terms of the wide variety of quality investment options available, there’s really never been a better time to invest than the present.

No matter what you end up investing in, it’s been shown that passive index funds will nearly always outperform actively managed funds in the long run.  One study found that over 20 years, 92% of all mutual funds underperformed index funds after fees and taxes. [1] Until there’s an active fund manager that will tie their compensation and expense ratio to the performance of their fund, stay away from high cost actively managed funds.

 Contributions Matter

Investors might spend a lot of time dealing with their allocation and investment choices, but contributions tend to trump it all.  This is true especially for younger investors: a $10,000 contribution to a $50,000 portfolio will have a much larger effect than any 5-10% gain or loss in the market.  As you get older, contributions will matter less and less since they become a smaller percentage of your portfolio.  If you’re young, it’s important to prioritize contributing early and often.

Simplicity is Key

Although the variety of investment choices has never been greater, simple portfolios have been shown to have some of the most success.  If you want to manage your own investments, some recommend portfolios with only three funds: a Total Stock Market Fund, a Total International Market Fund and a Total Bond Fund. But you still have to do the work to rebalance among the funds a few times a year.

If you want to get even simpler, there are lifecycle funds that do basic asset allocation and rebalancing for you.  Nearly every company now offers low fee lifecycle funds based on your potential retirement date.  The fund will automatically rebalance and adjust your risk tolerance towards conservative investments as you get closer to retirement. You just have to make sure you choose a lifecycle fund with low fees.

Another simple solution that requires even less effort:  having your investments managed by FutureAdvisor, a fee-only registered investment advisor for clients with $3k or more in assets. FutureAdvisor handles a household’s entire portfolio, including IRA, brokerage accounts, 401k, old 401k, and other account types. Starting from where your portfolio is now, they get it to an academically backed 11-class asset class allocation and do all necessary rebalancing over the years. You can try it out by seeing the changes they recommend to optimize your portfolio for performance, tax efficiency, and fee-efficiency over at FutureAdvisor.com.


There’s no need for a ton of complex analysis when it comes to investing, just keep it simple. And don’t “do it yourself” if it’s not something you enjoy.

The last 50 years of investing has provided us with a ton of information.   Investing isn’t as complicated as it seems.  And although you’re dealing with large sums of money, that doesn’t mean you have to spend a lot to get good advice.

[1] Robert Arnott, Visiting Professor of Finance at UCLA: see his research showing that 92% of mutual funds underperformed index funds when taxes are taken into account. “Arnott, Robert. Berkin, Andrew L. Ye, Jia. The Management and Mismanagement of Taxable Assets.” Investment Management Reflections No. 2″ (PDF). 2000.

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FutureAdvisor FutureAdvisor is an award-winning investment advisory firm that manages your existing IRA, Roth, taxable, and other investment accounts. The experts there focus on taxes, retirement and investing.
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