qandaQ: What can I learn from asset class performance history? 

Q: Jim Collins, at jlcollinsnh.com always promotes Vanguard Total Stock Market Index (VTSAX) as the exclusive stock fund for index investors. Please shed light on the superiority of your diverse recommendations vs. VTSAX. 

A: Check out the 4 Fund Solution Table in my series on the performance of many major asset classes. The S&P 500 (virtually the same long-term track record as VTSAX) has an 87-year track record of producing a 9.8% compound rate of return (CRR), including dividends. The total market index produced a 9.9% CRR over the same period of time. The balance of 4 asset classes (large cap blend, large cap value, small cap blend and small cap value) compounded at 11.9% for the same period. The table also compares the returns of 15 and 40-year periods. 

When you review the Performance articles, I know you will understand why I take a very different approach than Jim. I visited Jim’s site and I think he is working hard to give readers a wide range of prudent financial advice. I suspect he is trying to make investing very simple for investors but, like so much of life, with a little extra work and time, much higher returns are highly probable. I think picking the stocks that will be successful in the future is very difficult. I suspect there is a lot of luck in the outcome. On the other hand, picking successful asset classes is very easy. The academics have already done all the research. Once you figure out the best asset classes your job is to select the best mutual funds to represent those asset classes. I find junior high school kids can understand this information, so I’m not concerned about adults understanding it. The hurdle is usually the belief, “Investing is just too complicated for me to understand.” Besides reading the Performance articles, I suggest you read, “Why Vanguard Total Stock Market isn’t the best ship in the fleet.”