It is pretty much a statistical certainty that you will underperform/lose money over the long run.
Ah, the MMM forums, where almost anyone is capable of doing something that maybe 0.0001% to 0.01% actually do (retire after 10-ish years of working), but it's a statistical certainty that you can't do something that 15-50% of people actually do (beat the returns of the stock market).
This post is a perfect example of the traps people fall into. They see people achieving things that seem impossible (retiring early), then when they see the statistics of how few people are able to beat the market over the long term, they think it's possible for them to do that too! Things like this don't phase them:
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"Of the 355 equity funds in 1970, fully 233 of those funds have gone out of business. Only 24 oupaced the market by more than 1% a year. These are terrible odds." Jack Bogle (2007)
Bill Bernstein, author of The Four Pillars of Investing: "Does this (three fund) portfolio seem overly simplistic, even amateurish? Get over it. Over the next few decades, the overwhelming majority of all professional investors will not be able to beat it."
"Only about one out of every four equity funds outperforms the stock market. That's why I'm a firm believer in the power of indexing." Charles Schwab
"The fund industry's dirty little secret: most actively managed funds never do as well as their benchmark." Arthur Levitt, Chairman, SEC
"Over the long-term the superiority of indexing is a mathematical certainty." Jason Zweig, senior writer for "Money"
"Indexing virtually guarantees you superior performance. Bill Bernstein, author, financial adviser
"With the market beating 91% of surviving managers since the beginning of 1982, it looks pretty efficient to me." Bill Miller, portfolio manager
Sources:
http://www.bogleheads.org/forum/viewtopic.php?t=173#p20484http://www.bogleheads.org/forum/viewtopic.php?f=10&t=88005--------------------------------------------------------
But there's a big thing they're missing there.
They don't see that it's a competition. Tell someone they can beat Michael Jordan in a game of basketball, and they will laugh in your face...but give them a sales pitch for "one weird trick" to beat the market, and people will line up to give you money.
Retiring early is comparatively easy. Simply follow the formula, save money, and you'll get there. It almost guaranteed. Saving money is the hardest part, and you're mostly only competing with
yourself on that front. For the newbies in the thread, it's important to understand this next point. When someone claims they can beat that market over the long term, they're saying you can beat over half of all money invested in the market this year, then again next year, and again the year after that...for as long as they live. All by using a published, widely known strategy, that the other market participants (the people they claim to be beating) are aware of. This is essentially the claim:
"<
Insert Strategy Here> beat over half of all invested dollars in the past. While this information is public, I do not expect the losers to adopt my published strategy, or change to a better strategy, so I expect it to continue beating over half of all invested dollars in the future."
This isn't just someone saying, "I can beat Lebron James in a 1 on 1 basketball game, you can too!"
It's, "I can beat Lebron James in a 1 on 1 basketball game, every single year, and he knows exactly what I'm going to do each time, and he doesn't copy my strategy or figure out a way to beat me, so I expect I will continue beating him in the future, you can too!"
Compared to:
"Indexing beat or matched half of all invested dollars in the past, I do not expect mathematical laws to change, so I expect it to beat or match half of all invested dollars in the future."
Which one of these statements are you willing to bet your life savings on?