For the record, my strategy didn’t do very well in 2008 either, and nothing really did, because of the global meltdown in Oct/Nov. About the only thing that would have worked is a timing strategy that put you all in cash. Unfortunately I don’t know anyone who consistently succeeds at timing the market, and I don’t try.

I also find it fascinating how nobody wants to buy stocks at 50% off. Why? We try to find a bargain on everything else.

Finally, look at a 10 year chart of the S&P500. That is why I don’t believe in indexing. I still use index funds, but blind adherence to a buy and hold strategy requries a VERY long time horizon – longer than most investors can stomach.

Yes finding a good advisor can be as daunting as finding a good strategy. It takes time and some critical thinking skills. There’s a lot of good info in the e-universe; and there’s a lot of crap – probably more so. That’s why people need to verify, verify, verify. In my opinion, people should avoid financial/investment professionals who are primarily compensated by commissions, and also those who are not will to express in writing that they will acknowlege that they are a fiduciary – IN WRITING. A fiduciary is one in a position of trust that MUST place your interests above their own. Many planners/advisors cannot or will not. A good place to start is the Paladin Registry of Financial Professionals.

Dalbar published a report in 2005 with the 25% statistic i referred to earlier. The reason most people fail miserably is because they act on emotion and without a clear strategy. They buy high and sell low. It does not have to be short term either, though often it is.

Let me pose this scenario: The S&P 500 hit all time highs in 2000, lost half it’s value over the next couple years, and finally regained it’s previous highs only last year. How many people do you know that have 7 year’s worth of patience? Whether they know they should or not, people question the validity of their strategy in a protracted downturn. And worse, if you’re only 10 or 15 years from retirement, you’ve missed 7 years of compounding that figured into your retirement plans. If you understand compounding that means you’ve missed a double. I happen to believe that we’re in a secular bear market still and that we may have more volatile years ahead. Secular trends tend to extend from about 13-20+ years. Passive strategies do well in a secular uptrend. I think you need a little more maneuverability in flat and down markets characterised by a bear market.

I could go on and on, but again, time is a limit. Best of luck in your journey.

The 35 rules was written before I fully gain the appreciation for simple strategy of investing in globally diversified passive funs. May be I should go back and put a disclaimer on that article or revise it completely.

I didn’t mean to “put down” your strategy in my last comment. And I happen to agree with a lot of what you said here in the second comment.

* Verify, verify, verify — Absolutely. But finding the right advisor could be just as challenging as finding the right investment strategy, wouldn’t you agree?

* “most investors only get about 25% of the return of the funds they invest in” — I believe I read this somewhere as well. It has to do with how long these investors hold the fund and either buy when things look good (chasing performance) or sell when things look bad.

* “I think buying individual stocks and bonds is a recipe for disaster” — There’s no issue here, because I happen to agree with you 100% on this. I admit that I was an individual stocks investor at one point, but I have matured since. Now, my preference is to invest in low-cost ETFs and passive funds

Thank you for your very well thought out comment.

Another common misconception is that investors actually get “average” results. According to Dalbar, most investors only get about 25% of the return of the funds they invest in. A good advisor following a well devised index strategy will get them average returns, which is better than most of them will get on their own. Adding tactical managment to the equation, if driven by a solid strategy, can indeed add alpha. And for the record, I’m not talking about or advocating market timing – I don’t believe in it.

For my part, my real-time numbers don’t rely on picking a good fund manager that will beat an index for the next 5, 10, or longer years, so personally I could care less if they beat their index over the long haul – my rule #29 doesn’t require it. And for the record, I use index funds in my strategy – i just don’t think they’re a panacea. If an advisor can’t do better than average, my thinking is “Why have one then?” And you’re right – many of them can’t. That’s why investors should require evidence that an advisor’s strategies actually produce real-world results.

Now, it’s my turn to take issue with YOU on your Rule # 6! Unless an investor has expertise in an industry, I think buying individual stocks and bonds is a recipe for disaster. First of all, most investors lack the capital to achieve true diversification; they will almost invariably end up over concentrated in an area. Second, the time required to research industries, sectors, economies, and then individual stocks requires a lot more analytical capability and time than most people possess, whether they have desire to learn or not. Third, individual assets are frequently much more volatile than a basket of comparable securities. There is safety in numbers.

I’m sorry this is so long and rambles a bit – i didn’t have time to write a shorter response.

And using Warren Buffett as an example wouldn’t be legitimate argument either since he’s not only investing, since he influence the management and leadership of companies he “invests” in.

In fact, I wrote a post today to explain why active investing strategy rarely beats a passive one:

http://www.moolanomy.com/532/e.....hesis-emh/

It’s a controversy in the financial planning profession: do we have a fiduciary responsibility toward our clients? Do we always legally have to put their interests first?

The fact that this is a controversy is chilling and would keep me away from a financial planner.

My Dbro is a CPA, ChFA, and several other initials I can’t remember. He is also a beneficiary, PoA, and executor–so he has a bigger stake in my financial prosperity than any paid planner. I mostly figure out things myself but if I have a question, I often ask him what he thinks. I trust him more than a stranger and I feel lucky to have a trusted family member with the right kind of expertise.