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Index investing was sold, hard, to investors – to the tune of $58 billion a month – as a safe, hassle-free way to ride stocks all the way to the moon.
Led by the High Priest of Indexing, John Bogle, and endorsed by Warren Buffett and other legendary investors, indexing was supposed to be the answer to all our investing goals.
"Buy a low-cost index, sit back, and let the magic happen."
But trade wars… U.S. President Donald Trump's vendetta against Amazon… North Korea… Iran… Italy… rising interest rates…. and more have all helped propel huge swings, and I suspect 2% daily swings were not what most new index investors were looking for when they made their initial investment.
It's not just volatile periods that present problems for index investors, either. It's a bad idea all the time – and here's why…
About the Author
Tim Melvin is an unlikely investment expert by any measure. Raised in the "projects" of Baltimore by a single mother, he never attended college and started out as a door-to-door vacuum salesman. But he knew the real money was in the stock market, so he set sights on investing - and by sheer force of determination, he eventually became a financial advisor to millionaires. Today, after 30 years of managing money for some of the wealthiest people in the world, he draws on his experience to help investors find "unreasonably good" bargain stocks, multiply profits, and build their nest eggs. Tim tirelessly works to find overlooked "hidden gems" in the stock market, drawing on the research of legendary investors like Benjamin Graham, Walter Schloss, and Marty Whitman. He has written and lectured extensively on the markets, with work appearing on Benzinga, Real Money, Daily Speculations, and more. He has published several books in the "Little Book of" Investment Series and a "Junior Chamber Course" geared towards young adults that teaches Graham's principles and techniques to a new generation of investors. Today, he serves as the Special Situations Strategist at Money Morning and the editor of "Max Wealth" and Heatseekers.
I don't consider a prospective P/E ratio of 16.9 (per Moringstar SPY etf as of the close on 5/31/18) as expensive in this low interest rate environment. Where do you come up with it being in the top 20%?
That's poor advice over the long term….