Long-Haul Investing

It's nearly 3,000 years since Aesop first told the story of the tortoise and the hare. And a lot of investors still don't get it.

Last week, someone who was invested in a successful long-term mutual fund emailed to ask if she should sell it because it had a bad year. She's not alone. All the data show that lots of people jump out of funds when they have a bad run and jump into those that have done well for a couple of years, or even a couple of quarters.

The data also show that most ordinary investors have done far, far worse over time than those who just stuck their money in an index fund and forgot about it. The numbers aren't even close.

My apologies to the many readers who already know this stuff, but there are lots who don't, and it's worth revisiting the basics.

The question to ask yourself before you invest in any mutual fund is this: Do you have strong reasons to believe that the people running it are going to do better than the average? Are you confident they are smarter than Wall Street -- and that they will be free to put that intelligence to work for you?

If you don't, do yourself a favor: Don't invest in the fund. Ignore what it did last year. Invest in an index fund instead. You'll do better, and you'll pay a fraction of the fees. Most funds do worse than an index fund, such as (VTSMX Quote)Vanguard Total Stock Market(VTSMX), over the long haul.