SHOULD YOU INVEST in the stock market? The answer seems obvious: Over the past 90 years, stocks have returned an average 10% a year, far outpacing bonds at 5% and cash investments at less than 3%.
So why ask the question? The reason is the word “average.” Stock market returns are, of course, uneven from year to year and uneven from stock to stock. That’s well known. But the degree to which stock performance varies from stock to stock may surprise you—and that has implications for how you invest.

I REMEMBER SPEAKING with an industry colleague about a company that had been in the news. He told me that he liked the company’s stock and, in fact, had bought it for the mutual fund he managed. Then he added, parenthetically, “I owned it, then I sold it, then I bought it back.”
This discussion highlights a fundamental challenge for investors: Mutual fund managers face incentives that often diverge from their clients. Specifically, fund managers are graded and compensated for their performance before taxes.

PUT YOURSELF IN THEIR shoes. I’ve been doing that in recent weeks, thinking about how I’d design a portfolio if I lived in, say, Australia, Japan or the United Kingdom. What prompted this navel-gazing? I’m in the middle of revising my 2016 book, How to Think About Money, for an international audience.
One conclusion: Here in the U.S., we have it far easier than foreign investors—and a big reason is currency exposure.

ANYONE WHO FOLLOWS my work knows I am a staunch advocate of index funds and believe that stock-picking is a difficult road. That said, there are three undeniable facts about picking stocks:

All of the great fortunes—Rockefeller, Carnegie, Gates, Buffett—were built by owning one stock: a very good one but, nonetheless, just one.
There are rare investors who are able to outperform the market averages by picking the right stocks. It’s hard, but it can be done.

THERE ARE MANY financial debates that shouldn’t be debates at all. Folks strike strident poses, but often their positions don’t reflect a careful weighing of the arguments. Rather, they either have a vested interest or their ego is invested. Think of commission-hungry insurance agents who pound the table for cash-value life insurance, or retirees who took Social Security early and then insist that early is always best.
In most of these cases, if we marshal the facts and apply some reasoning,

SUCCESSFUL INVESTING is simple, but it’s rarely easy. Yet millions of investors, both professional and amateur, assume they know what they’re doing. “We live in this mystical state where everybody thinks they can practice finance,” notes William Bernstein, retired neurologist and author of a fistful of acclaimed finance books. “But you shouldn’t practice without understanding the science of finance.”
What science? Bernstein, whom I’ve known for more than two decades, says it has four elements: investment theory,

UNIVERSITY OF California finance professors Brad Barber and Terrance Odean published a research paper on investor behavior in early 2000. The results weren’t pretty. By their reckoning, individual investors lagged the overall market by an average of almost four percentage points a year. The culprit: the costs involved in trading individual stocks.
It isn’t just individuals who struggle with stock-picking. Professional money managers, on average, also trail behind the overall market. Over the past five years,

SOMETIMES WE DON’T give kids enough credit. Last week, my first-grader reminded me of this fact. On a trip to CVS, he was looking through the drink cooler, when he asked, “What’s Smartwater?” Before I could answer, he started with his own commentary. Seeing the price tag—which was more than double that of the regular water next to it—he wondered, “Why’s it smart? It’s just water. Is it really going to make me smart?”
This made me realize something: As consumers,

IN NOVEMBER 2006, I wrote an article for The Wall Street Journal about how to get started as an investor, even if you didn’t have much money to spare. The article was read by Charlie Cutelli, a high school teacher and coach in St. Louis, Missouri.
“At the end of the article, there was a nugget about T. Rowe Price waiving the $2,500 minimum ‘if you commit to socking away at least $50 a month through an automatic investment plan’,”

TRYING TO BEAT THE market isn’t just a risky endeavor that will almost certainly end in failure. It’s also unnecessary and, arguably, an astonishing waste of money and time.
As I grow older, the clock ticks ever more loudly in my head. I hate to be kept waiting. I keep chores to a minimum. I try to eliminate activities from my day that bring little pleasure and have no purpose. I think hard before acquiring new possessions,

MY INTEREST IN personal finance began during a road trip five years ago. Driving alone, in a desolate part of the state, my choice of radio stations was limited. Desperate to find something other than static to listen to, I punched the “seek” button and came across Dave Ramsey’s radio show.
As someone who has always tried to live within or below my means, I appreciated his “beans and rice, rice and beans” philosophy.

WHEN I FIRST BEGAN investing 16 years ago, I threw a bunch of investments at a wall to see what would stick. Someone I respected encouraged me to invest in master limited partnerships, so I purchased a few companies. I had no real idea what an MLP was or did. Sure, I spent some time surfing the net. But that was about it.
Fast forward one year to tax time. I had lost money and had no idea I had to file with the IRS for an extension,

A YOUNG GRADUATE student named Harry Markowitz wrote a paper in 1952 that sought to prove, mathematically, the old maxim “don’t put all your eggs in one basket.” Through his work, Markowitz taught investors how to diversify their investments effectively, something that was not well understood at the time.
For instance, he explained that the number of stocks you hold is far less important than the number of types of stocks you own.

A FEW YEARS BACK, a fellow named Wylie Tollette faced uncomfortable questions as he sat before the public oversight committee of the California Public Employees Retirement System (CalPERS). Tollette, the pension fund’s Chief Operating Investment Officer, was responsible for updating the committee on the status of its massive $350 billion portfolio.
But when a committee member asked about the fees CalPERS was paying to a particular group of investment managers, Tollette did not have a ready answer.

I LOVE THE PRICE war among index-fund providers, because it puts pressure on all money managers to lower fees. But I don’t think investors should pay much heed to differences in annual expenses that amount to just 0.01% or 0.02% a year, equal to 1 or 2 cents for every $100 invested—and they certainly shouldn’t switch funds for those potential cost savings.
To check I wasn’t missing something, I set out to do apples-to-apples comparisons among index funds in four highly competitively segments of the indexing market: large-cap U.S.