Warren Buffett is widely regarded as the best stock picker in the world. For over 50 years he has very successfully operated Berkshire Hathaway as a holding company purchasing companies trading primarily on the New York Stock Exchange.
When Warren is no longer buying and selling, he will place all his family money into only 2 investments: 90% will go into a index fund that tracks the 500 largest companies in America (S&P 500 ETF) and 10% will go into cash. That’s it. The world’s best investor knows how it is virtually impossible for normal folks who are not experts to beat the market.
You and I are not Warren Buffett. When I was a kid, I thought I was good enough to become a major league baseball player. Soon enough, I realized that would never happen. Thinking you can buy and sell stocks when your competition are guys like Warren Buffett is almost as crazy as my dream of playing for the Blue Jays.
Most professional money managers can’t do it. There is a lot of research that shows the vast majority of “professionals” can’t beat the performance of a low cost exchange traded fund like the Vanguard All World Index ETF.
So why even try? Is you mess up with your buying and selling, and there is a very good chance you will, you risk not having enough money for retirement.
By buying the whole index and following the set it and forget it investing plan, you will outperform 75% of mutual funds consistently.
One last point: You know that hot mutual fund that has beaten the market the past 5 years that financial press keeps talking about? Chances are it will under perform the broad market during the next 5 years. It’s called reverting to the mean and it’ll happen as soon as you give them your money.