Exchange-traded index funds are our friends

Horsies, doggies and casinos are a great analogy for stock markets. There are a lot of testosterone-amped men running around spinning yarns about how they know which horse will win, and why. The reality is, if anyone actually has scientific evidence suggesting strongly which horse will win, they are betting big and keeping quiet.

So it goes with shares. No one knows. Anyone that says they know is benevolently ignorant, or malevolently misleading.

As small scale investors, we are ripe targets. Just like intoxicated punters studying the form, we can be lured with promises of a quick buck, a certain return. There is no such thing – But there is big money in telling us there is, because if we trade lots, we pay lots of fees, and feed lots of payouts. So we are up against it.

Yet we still want a place to park our money for the long term, where it can work for us. This is where exchange-traded index funds are our friends. Instead of betting a single horse will win, they are a bet that some horses will win, some horses will lose, but that everyone will have a pretty good time and come back next year.

Pick a broad enough fund, and sit on it long enough, and you have an extremely high probability of achieving two objectives: Keep your capital safe, and earn a useful return. You won’t get rich, but you won’t get fucked, and there are a great many people out there with a serious interest in you being fucked.