You heard it here first − Apple stock could hit $2,000. It is possible. Also, the Dow could double in the next couple of years. It IS possible. All media people should contact me directly for details because they are too sensitive to discuss here. I do television also.
Actually, I don’t believe that Apple stock will hit $2,000 or the Dow will double any time soon. I made these big, bold, and outlandish predictions because someone will do it to get media attention, so that person might as well be me.
Now that I have your attention, here is what I really have to say:
- Don’t believe what you read or hear in the media about where a stock is going or where the market will be by a certain date. The people who make these predictions have no idea what prices will be in the future. They do it just for attention. Following their advice will probably make you poorer, not richer.
- Stop paying ridiculously high fees for actively-managed mutual funds, investment advisors who think they can beat the market, and for model ETF portfolios that have multiple costs. It is all a waste of your money. The probability these methods will actually outperform the markets over the long-term are remote.
- Invest in a broadly diversified portfolio of very-low cost portfolio of index funds or ETFs that match the return of the global markets. This strategy has the highest probability of meeting your financial goals.
I urge you to learn about the efficient fund hypothesis (EFH). It spells out the reason why a low-cost index fund portfolio provides the highest probability of reaching your financial goals. It’s not about the possibility of Apple blasting off or the Dow hitting the Moon. It’s about increasing the probability of your long-term success as an investor.
My latest book, The Power of Passive Investing, includes the facts and figures that show that a portfolio of index funds has an extremely high probability of outperforming a comparable portfolio of actively-managed funds. Table 1 has the hard facts about this active versus passive debate:
Table 1: The probability an all index fund portfolio will beat an all active fund portfolio
Sources: The Power of Passive Investing [Wiley 2010], The Journal of Investing [Martin 1993] and Allan Roth, Wealth Logic, LLC.
Reading Table 1 is simple. It compares portfolios using only index funds to portfolios using only actively-managed mutual funds. The number of funds and the time period make an overwhelming case for index funds. For example, the green box in the middle is the probability that a portfolio of five index funds in five different asset classes will outperform five actively managed mutual funds in the same asset classes over a 10-year period. This 92 percent probability increases to 98 percent over a 20-year period.
If your goal is to do the best for yourself (not the best for an investment advisor or fund company), then dump the high fee funds, dump the advisor who is charging you 1 percent and delivering nothing, dump the idea that someone can actually predict Apple’s stock price or the Dow, and do what John Bogle, founder of the Vanguard Group of mutual funds suggests: Buy a portfolio of very low-cost index funds across several asset classes based on your needs, and rebalance the portfolio occasionally.
This simple index fund strategy works. I realize that it doesn’t get the media attention that predicting a $2 trillion market cap for Apple gets, but it just plain works! That’s what investing is all about.