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8-Year Old Investor Beats Market, Pros

It would be nice if that headline were a joke, but, sadly, it isn't.  How did he do it?  The same way most smart individuals do.  Paul Farrell explains.  By owning a diversified portfolio of index funds (the Vanguard Total Stock Market fund, the Vanguard Total International Stock Market Fund, and the Vanguard Total Bond Market fund).  Thanks to the bonds in the mix, the portfolio has a lower risk (standard deviation) than the S&P and has delivered higher returns.

This, of course, is the smart way to try to beat the pros (the dumb way is to try to out-trade them).  And the nice thing is, because the pros can't buy low-cost index funds, it's almost guaranteed to work.

Posted by Henry Blodget on February 20, 2007 in Blog, The "Level Playing Field" |

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Comments

Farrell badly botched his analysis -- Farrell writes that the portfolio performance is the result of insight -- but really result of the 8-year-old's accidental & naive asset allocation. Good result, mediocre analysis.

Posted by:john | February 23, 2007 at 12:47 PM

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