Primum non nocere
- September 18th, 2006
We have to admit that we thought the Latin phrase “primum non nocere” or “First, do no harm” was a part of the Hippocratic oath. Apparently we were wrong. This came to mind because we have thought for quite some time that personal financial journalists and bloggers should keep this dictum in mind when they write for a general audience. In a sense, investing is risky enough without having to deal with portfolio advice that is not ground in sound theory and common sense.
One mainstream media writer who seems to follow this approach with a high level of consistency is Jonathan Clements in the Wall Street Journal. Clements’ columns are usually well-written and focus on calm, consistent advice for individual investors. His most recent column addresses the question of what role the new “fundamental indices” should play in a balanced portfolios.
Where does that leave us? As a starting point, I often suggest indexers purchase three core holdings. Suppose you want a balanced portfolio. You might stash 42% in a U.S. total-market index fund, 18% in a foreign-stock index fund and 40% in a bond-market index fund.
This simple three-fund mix would, I believe, be a fine choice for most investors. But I am not militant about taking a market-weight approach. If you want to add a value index fund to this mix, tilt toward smaller companies, overweight emerging markets or throw in a fundamental index fund, I am not going to object too strenuously.
The point is not focus on this specific portfolio, but the approach is one that focuses on indexing, low costs, low turnover and periodic rebalancing. We find it hard to argue with this type of approach for the vast majority of individul investors.
Granted many (or most) people reading investment and trading blogs are not looking to simply match the market. They are looking to generate, dare we say it, abnormal returns. Which is fine so long as every one attempting to do so recognizes that this comes with the attendant risk of underperformance. For a broader audience, simply trying to match the market is a not immodest goal.
Abnormal Returns is a participant in the Amazon Services LLC Associates Program, an affiliate advertising program designed to provide a means for sites to earn advertising fees by advertising and linking to Amazon.com. If you click on my Amazon.com links and buy anything, even something other than the product advertised, I earn a small commission, yet you don't pay any extra. Thank you for your support.
The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.
Abnormal Returns has over its seven-year life become a fixture in the financial blogosphere. Over thousands of posts we have striven to bring the best of the financial blogosphere to readers. In that time the idea of a “forecast-free investment blog” remains as useful as it did six years ago. More »
- Wednesday links: a deliberate bet
- Tuesday links: bullish on hedge funds
- Monday links: knowing your time horizon
- In search of growth in a shrinking pool
- Sunday links: lucky or smart
- Top clicks this week on Abnormal Returns
- Saturday links: systems vs. goals
- Friday links: avoiding complexity
- A transitional moment for advisors
- Active vs. passive: try harder or do something easier?