AS CORPORATIONS issue more shares and as new companies emerge, existing shareholders see their claim on the economy’s profits diluted. Indeed, the economy’s fastest growth often occurs among privately held companies. Ordinary stock market investors can’t buy into these private companies until they have grown large enough to be taken public in an IPO, or initial public offering.
The historical dilution suffered by existing shareholders has been estimated at around two percentage points a year by money managers Robert Arnott and William Bernstein (“Earnings Growth: The Two Percent Dilution,” 

BASED ON U.S. MARKET history, there appears to be a fairly tight connection between economic growth and stock returns. But the story is messier than it seems. While economic growth and per-share profits for the S&P 500 companies grew at a somewhat similar pace in recent decades, the growth in earnings per share received a significant boost from falling corporate tax rates and rising corporate profitability.
The top corporate tax rate, which was 48% for much of the 1970s,

WANT TO PUT together a portfolio of actively managed mutual funds? Your first hurdle: the overwhelming number of funds to choose from. You could narrow your focus by sticking with one of the big three no-load mutual fund companies—Fidelity Investments, T. Rowe Price Group and Vanguard Group—and then picking from among their funds. But you may be shortchanging yourself.
Other fund families worth checking out include American Century Investments, Artisan Partners Funds, Baron Funds,

STATE STREET GLOBAL Advisors launched the first exchange-traded index fund in 1993 with the introduction of SPDR S&P 500 ETF. Still, if anything, State Street’s SPDR family of ETFs has been playing catch-up in recent years. In 2000, the iShares group of ETFs, then owned by Barclays Global Investors and now part of BlackRock, was launched. Thanks to an aggressive marketing campaign that saw a slew of new funds introduced, iShares quickly grabbed significant market share and today ranks as the largest manager of ETFs.

LED BY FOUNDER John C. Bogle, Vanguard Group introduced the first index mutual fund for ordinary investors in 1976. The fund tracked the S&P 500-stock index and charged 0.43% in annual expenses—a huge sum by today’s standards. Initially, the Vanguard 500 fund was slow to attract investors. But as it took hold through the 1980s and 1990s, Vanguard introduced additional index funds that tracked other parts of the market. By the late 1980s, other major fund companies were also trying to get into the market.

ACTIVELY MANAGED FUNDS or index funds? Some investors opt for “all of the above.” They build a core position in index funds, thus ensuring that part of their money captures the market’s return, and then enhance it with actively managed funds in hopes of goosing performance. For instance, once you’ve settled on your target investment mix, you might build two parallel portfolios, one entirely of index funds and the other with active funds.
Alternatively,

YOU’VE HEARD ALL the arguments in favor of indexing—but you still want to try your hand at picking actively managed funds. What should you look for as you seek market-beating funds for each slot in your target portfolio?

You want fund managers with great performance over five years and preferably longer. If a mutual fund has notched market-beating returns but the manager responsible has since moved on, the record is meaningless.
You want managers with strong records relative to an appropriate benchmark index.

INDEX FUNDS COME IN two flavors. The pioneers were of the mutual fund variety. With a mutual fund, you can buy and sell just once a day, with the share price established as of the 4 pm ET market close. If you purchase no-load index funds, typically your only cost is the fund’s annual expenses.
The upstart competitors are exchange-traded index funds, or ETFs, which are listed on the stock market. You can trade them throughout the day,

YOU COME ACROSS a company with a great product that’s growing like a weed, you buy the stock—and the shares go nowhere. The Commerce Department announces robust economic growth for the latest quarter—and stocks tumble. The Federal Reserve lifts short-term interest rates—and the markets greet the policy change with a collective yawn.
What’s going on here? Stock and bond prices reflect both currently available information and also investors’ collective expectations about future developments. When that new information becomes available,

THERE ARE TWO GREAT reasons to hire a financial advisor—and two great reasons not to.
An advisor can potentially provide you with both financial expertise and a steadying hand that keeps you on the right financial track. Traditionally, it’s been the expertise that was emphasized: Brokers would pride themselves on picking good stocks for clients and offering insights into the market’s direction. But increasingly, advisors are less a source of expertise and more a conduit for it.

ON THE HUNT FOR a low-cost advisory service? It may be no farther away than your computer keyboard.
There’s been a proliferation of online advisors, including firms such as Axos Invest, Betterment, Empower, Rebalance, SigFig and Wealthfront. These firms typically either charge a percentage fee, based on the assets you invest, or they levy a monthly charge. Either way, you’ll likely pay far less than the 1% of assets or more charged by many traditional advisors.

IF YOU NEED a financial advisor, by all means ask colleagues and neighbors for recommendations. But keep in mind that a lot of folks are good friends with their advisor. What they pay in fees, and the quality of the advisor’s recommendations, are secondary considerations. Want to hire a top-notch advisor? Forget friendship—and focus on asking potential advisors the right questions:

How are you compensated and what’s the total cost I can expect to pay each year?

A GOOD ADVISOR could prove to be your financial salvation. But it doesn’t always work out that way. The risk: Your advisor is either incompetent or puts his or her interests ahead of yours.
With any luck, after spending time perusing HumbleDollar, you’ll know what prudent investment advice looks like, so you can tell if an advisor is pushing some dubious strategy. But you also need to be alert to the potential conflicts of interest that come with the four different methods of compensating an advisor:
Commissions.

HISTORICALLY, BROKERS have been paid through the commissions they charge every time you buy and sell. But faced with competition from fee-only financial planners, even the major brokerage firms are now looking to reduce the emphasis on commissions and instead charge a percentage fee based on an account’s size. For instance, a financial advisor might charge 1% annually on a $1 million account, equal to $10,000 a year.
This eliminates many of the conflicts-of-interest that come with paying commissions.

MANY LOAD MUTUAL funds have a bewildering array of share classes, each typically designated by a letter. Working with a financial advisor who is compensated through commissions? The broker will likely suggest one of three share classes:
A shares. These charge a significant upfront commission, often 5.75% for stock funds, and a modest ongoing 12b-1 fee, typically 0.25% per year. Despite the upfront cost, A shares are often the best choice if you use a full-service broker,