I spent the afternoon today at a meeting of the local investment club.  Despite being the youngest person in the room by at least 45 years, I enjoy the meetings and feel that I can both learn from and contribute to the group.

The speaker today was an “advisor” from Edward Jones, who gave one of the weakest presentations I have ever witnessed.  Sadly, she was not lacking in presence or confidence, but rather in the information that she presented.

For starters, the speaker did not demostrate substantial knowledge of modern portfolio theory, the widely accepted concept that asset allocation alone determines the vast majority of the expected return on a portfolio.  Her ideas about asset allocation were antiquated, concerned with arbitrary titles such as “aggressive growth” or “growth and income” rather than market capitalization, type of security, or domestic vs foreign markets. 

She jumped from topic to topic with no apparent connection or message.  Worse yet, some of her advice was contradictory.  For example, she uttered time and time again that investors must “be willing to ride out fluctuations over the long term.”  But she also insisted that if you invest in individual stocks, “you must-Must-MUST be willing to sell when a stock underperforms!” 

Worst of all, she firmly believes that actively managed, loaded mutual funds can and do outperform the market.  She went to far as to claim that the entire American Funds family has earned better returns than broad market indices since inception!  This assertion is simply false; actively managed generally do not outperform the market on a consistent basis, and [1] loaded funds almost never do.  Even a cursory glance at the following chart tells a different story: (the blue line at the top is the S&P 500)

I am a semi-strong believer in efficient markets, meaning that I do not believe that any investor can consistently earn better returns than the overall market.  Of course, inefficiencies crop up from time to time (the tech and housing bubbles of the last decade, for example) but even these irrationalities are random and thus impossible to profitably time. 

Buying low-cost index funds or ETFs, adding regularly to your investments, and holding them until you retire is the only reliable strategy that will approximate market returns over the long haul.  And after today, I would heartily recommend staying away from Edward Jones!