Bluefield Daily Telegraph, Bluefield, WV

Washington Post Features

October 1, 2012

6 rules of investing

(Continued)

NEW YORK —

Stock picking is for fun. Asset allocation is for making money over the long haul.

The weighting you select for various asset classes is a function of such factors as your age, income, risk tolerance and retirement needs. It is what serious investors focus on.

6. Are you an active or passive investor: For the equity portion of your allocation, you must answer a crucial question: Do you buy indexes and garner market-level returns, or do you pick stocks (or sectors) and time the market in an attempt to beat the indices?

Those who try to beat the market have a tough road ahead: Each year, 80 percent of professional managers fail to beat their benchmark. Of the few who do, once you take fees and costs into consideration, less than 2 percent actually hit that bogey.

If you want to beat the market, understand the long odds that are working against you. That is why for most investors, indexing is a much better bet.

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Ritholtz is chief executive of FusionIQ, a quantitative research firm. He is the author of "Bailout Nation" and runs a finance blog, the Big Picture. You can follow him on Twitter: @Ritholtz.

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