That's an interesting article, with good points. The thread of course has a lot of interesting comments. I think that the strategy someone chooses to invest their money ultimately depends on:
1) Investor goals
2) Level of knowledge & experience
3) Ability to stick to strategy through thick and thin
4) Investor limitations, such as time commitments, or workplace restraints
I personally know several people who would never even touch stocks. But they are doing pretty well financially by investing in rental real estate. So whether their "total returns" are lower or higher than what an investment in S&P 500 would have been over the past 10 - 20 - 30 years is irrelevant to them. They bought what they knew, they live off those rent checks, and reinvested the rest into more properties
I personally have most of my money in dividend growth stocks and would feel uncomfortable holding a portfolio:
- which someone else picked, and charges me money for it
- which can be changed on a whim regardless of insane valuation levels ( e.g. Yahoo being added in 1999 to S&P 500)
- which is structured in a way that it accommodates large money inflows from funds, not underlying business fundamentals
- which would require me to sell off assets, and expose me to return frequency risk ( which could be bad during a prolonged flat or down market – like the 1999 – 2012 period)
- which looks diversified on the surface, but the largest 30 – 40 components account for almost half of portfolio
- which exhibits a lot of turnover, and as we all know, frequent churning of holdings is bad for long-term returns
Instead, I buy companies that pay and grow dividends. I expect to hold them “forever”, or if something changes (if they cut those dividends). My dividends are always positive, and grow above the rate of inflation. I have a say on valuation, portfolio weights , I monitor my companies, I research them, and I enjoy it. My annual investment expenses are lower than the lowest cost Vanguard fund, and I rarely sell. It is easier for me to focus on dividend income growth, rather than focus on stock price fluctuations ( particularly relative to another group of securities). I cannot tell you whether the stock market will up, down, or sideways in the next 10 years. But I can be reasonably certain that the companies I own as a group will pay me good and growing dividends. If they don’t then we will have much bigger problems to worry about than the performance of investment portfolios.
My thing is, if I needed say $30K/year, and my portfolio throws off $30K/year, then why do I care about how much more I would have earned in another scenario? When you compare yourself to others, you will never be happy, and you are much more likely to do a stupid thing at the wrong time ( e.g. change a strategy if it has a temporary setback, and thus compound problems).
I mean, if I had studied to be a software engineer, rather than business school, I might have made more money but be totally miserable and much less likely to stick to working in the field.