Why Is Investing So Difficult?

New Reader? Get free regular updates from Can I Retire Yet? on saving, investing, retiring, and retirement income. New articles weekly. Join more than 18,000 subscribers. Unsubscribe at any time:

We write about many topics on this blog. One consistently popular topic is investing.

It’s honestly hard for me to wrap my head around why our investing posts are so popular. Darrow annually publishes a post sharing his investment portfolio. Last summer I shared my portfolio and investment policy statement.

Our philosophies are similar. I could describe those philosophies in two words. . . simple and boring.

So I struggle to balance reader demand for content on index fund investing with my view that there’s not much new to write about.

I recently listened to Scott Riecken’s new book “Playing with FIRE.” In the book, Scott describes the challenges he and his wife Taylor encountered on their journey from living paycheck to paycheck to a lifestyle devoted to the pursuit of FIRE, financial independence and retiring early.

One challenge they faced was conquering the feeling of being overwhelmed when deciding to take control of their investments. It resonated deeply with me, bringing back challenges my wife and I faced several years ago when we decided to take control of our finances.

It is a challenge many of us face, and some never overcome. The problem is not a lack of information on investing.

The problem is that there is so much information. It’s challenging to sort through it all to determine what actually matters and what is just noise.

I got a stark reminder of this when I recently saw an article titled “Investors’ widely held beliefs about ETFs and index funds may be wrong” trending for several days on the internet. It was written by Brett Arends, an “award-winning financial columnist with many years experience writing about markets, economics and personal finance.”

The article reminded me why investing is so overwhelming to so many, and why it’s so important to continue to emphasize things that are important to become a successful investor.

What Beliefs Are Wrong?

The provocative headline of the article was followed by a picture of a woman staring at a computer screen with a shocked look. The article then starts:

A new study has just shaken one of the biggest investment myths on Main Street.

An analysis of mutual-fund stock trades over the past two decades has thrown into question the rationale that has sent everybody and her grandmother stampeding into low-cost index funds and exchange traded funds.

That rationale: that even skilled fund managers can’t beat the stock-market indices, so there’s no reason to pay someone to try.”

A few paragraphs later the author continued:

“Instead, their research found substantial evidence that many skilled money managers are adept at picking stocks. ‘Mutual fund trades outperform their benchmarks,’ they wrote.”

All of this seemed like news to me. It goes against everything I’ve read about index investing, including annual SPIVA reports that seem to show overwhelming evidence that most actively managed mutual funds underperform the indexes they’re benchmarked against.

If the findings of this study revealed something different, I would indeed be shocked. And I would want to understand this new information. What is this new study and what exactly did it show?

The Value of “Average Returns”

Arends points out that the study “found the top 20% of funds beat the bottom 20% by a remarkable 1.27 percentage points a year. And the outperformance is even true when fund managers’ fees were taken into account.”

This is interesting, but should it shock anyone who invests in index funds? The entire premise of investing in index funds with a buy and hold strategy is that you are getting the average return of the index you are investing in.

Merriam-Webster defines average as “a single value that summarizes or represents the general significance of a set of unequal values.” Unless every value is identical, average results are the result of some results being above the average while some are below it.

If anyone is shocked that some funds in an index outperform the index average, then you don’t understand this basic premise of index investing or the mathematical concept of average. If the top 20% of funds beat the bottom 20% of funds by 1.27%, that means the other 60% of funds are somewhere in between.

The Impact of Investment Fees and Taxes

According to the website The Balance, the average mutual fund expense ratio ranges from 1.0% for large cap stocks to 1.2% for small cap stocks. The average expense ratio for S&P 500 index funds is .15%.

The value of investing in index funds means you get average returns without paying the high expense ratios associated with actively managed funds. Considering only the expense ratio of mutual funds, most funds will underperform the index.

But expense ratios are not the only fees incurred with a stock picking approach. Index fund investing also allows you to avoid paying trading costs and capital gains taxes that actively managed funds incur when trading securities in an effort to beat the index.

The ability to avoid this combination of high management fees, trading costs, and taxes is why achieving the average return of the index is so powerful.

Achieving the average return of the index means you will outperform the vast majority of, but not all, individual investors, mutual funds, and ETFs which in sum are the market. The fact that the margin between the top and bottom quintiles is only 1.27% only reinforces that point.

The Reality of Mean Reversion

The next point of the article is that active managers demonstrate skill when making “active trades” based on their analysis of a stock. In contrast, they are forced to make other trades because new money flows into and out of funds based on past performance which hurts subsequent performance.

It concludes that “mutual fund managers would do a better job if investors would just leave them alone.” This assumption may be correct, but it is irrelevant.

The reality is that investors always have, and likely always will, chase past performance. This is another pillar upon which the philosophy of being a buy and hold index fund investor is built.

Inflows into hot funds force some active managers to buy stocks even when they’d rather not. As funds underperform, investors tend to exit. This forces managers to sell when they may not want.

This is one factor leading to mean reversion, meaning funds that overperformed in the past tend to underperform going forward.

We all invest alongside others who tend to make irrational investing decisions based on fear and greed. It is wise to disregard hypothetical arguments and make investing decisions based on reality.

Most index funds beat actively managed mutual funds. That is reality. The longer you hold a fund, the more likely this becomes.

Misuse of Index Funds and ETFs

The final point the author makes is that most investors underperform the markets. He says we are our own worst enemies.

He writes: “Low-cost exchange traded funds and index funds are a response to the long term underperformance of “active,” stock-picking mutual funds. Ironically, though, they seem to address the wrong problem. They do nothing whatsoever to counterbalance the issue of mistiming. Quite the reverse: They’re so cheap and easy to buy and sell that they positively encourage Joe and Joanna Public to trade in and out.”

Again, there is nothing wrong or untrue with this statement. But it is nothing new and it shouldn’t be shocking to an index fund investor who has done his or her homework.

John Bogle wrote about using index ETFs to trade into and out of the market over a decade ago in his classic investing book “The Little Book of Common Sense Investing.” Bogle wrote:

“As to the quintessential aspect of the original paradigm–assuring, indeed guaranteeing, that investors will earn their fair share of the stock market’s return–the fact is that investors who trade ETFs have nothing even resembling such a guarantee. In fact, after all the selection challenges, the timing risks, the extra costs, and the added taxes–typical ETF investors have absolutely no idea what relationship their investment return will have to the return earned by the stock market.”

It is a fact that many investors don’t follow the buy and hold philosophy Mr. Bogle intended for index funds. This is a weakness of investors who do not follow Mr. Bogle’s philosophy.

It is not a weakness of the index funds themselves. This is not new and it should not be shocking.

Stay Boring

In summary, this new study has not shaken my beliefs as an index fund investor. In fact, it provides more evidence that reinforces my beliefs.

The most important lessons about investing can be summed up in the first few lines of the serenity prayer:

God, grant me the serenity

to accept the things I cannot change,

the courage to change the things I can,

and the wisdom to know the difference.

You can change:

  • Your savings rate
  • Your investment expenses
  • The amount of risk you take (asset allocation)
  • Where you locate investments for optimal tax efficiency (asset location)
  • Your behavior

You can not change:

  • Future market returns
  • Interest rates
  • Inflation
  • Other people’s behavior

I hope you found this article simple and boring. I hope nothing was shocking or new.

Simple and boring are exactly what you need to invest successfully. Once you understand that, investing is not that difficult.

* * *

* * *

Disclosure: Some links on this site, like the Amazon links, may be affiliate links. As an Amazon Associate we earn from qualifying purchases. If you click on one of these links and buy from the affiliated company, then we receive some small compensation. The modest income helps to keep this blog going. Affiliate links do not increase your cost, and we only use them for products or services that we're familiar with and that we feel may deliver value to you. By contrast, we have limited control over most of the display ads on this site. Though we do attempt to block objectionable content. Buyer beware.


  1. The biggest reason that many people worry about investments – allocations, individual stocks etc. – is FOMO. Worries that you may not be keepig up with the Jones’ is what gets people worked up over how well their portfolio is doing.

    Get over FOMO and invest to achieve what you as an individual/couple/family need. You’l probably find investing less worrisome. You don’t have to beat anyone – you just have to make yourself happy. A much easier goal.

    • Chris Mamula says

      Agree. Think that falls under behavior as one of the things we can control.

    • Respectfully, from what I’ve read, it’s the opposite fear, the fear of loss, that’s drives people to trade out of the market. There are numerous studys that show the pain of loss is much greater than the joy of gain. I have a friend that sold his house in 2011 because Obama was president and he thought things were going to get worse. I have another friend that got out of the market completely after Trump was elected. Both guys lost out, in this case, by letting politics guide their fears.

      Personally, I stick with Vanguard Admiral funds and stay invested; nice and boring. I might look at my balance six times per year.

      • Chris Mamula says

        Very true Mitch. I follow a few Facebook investing and financial independence groups and scan them to look for interesting articles or trends. It’s easy to spot when there is any type of market turbulence or even news suggesting there may be a market downturn b/c of the number of posts asking if it is time to sell.

      • Pretty boring article Chris : )

        Couldn’t help a Rounder’s quote Mitch, may or may not apply, but a good quote either way : )

        Mike McDermott : “Confessions of a Winning Poker Player,” Jack King said, “Few players recall big pots they have won, strange as it seems, but every player can remember with remarkable accuracy the outstanding tough beats of his career.” It seems true to me, cause walking in here, I can hardly remember how I built my bankroll, but I can’t stop thinking of how I lost it.

  2. Scott Burns couch potato portfolio seems to me to be the easiest and best way to invest. Mostly you have to be disciplined enough or lazy enough to just leave it alone

    • Chris Mamula says

      Agree. Laziness is an asset when investing. Discipline is harder to develop.

  3. When I recently suggested to a financial planner (aka commissioned salesman) that my deferred retirement savings (IRA’s and 401k) may turn out to be “unnecessary” because my taxable investments (dividend paying common and preferred stocks) are already generating enough income to support my retirement, he immediately went into salesman-mode. He tried to sell me a variable annuity (a complex insurance-company product investing in derivatives and who-knows-what-else, with hidden fees and commissions, offering a limited upside and a partially reduced but otherwise unlimited downside), describing it as “no-cost downside protection because the market has gone up for 10 years now and you need to limit your exposure”. Assuming that I was ignorant of even the basics of variable annuities and that he could push my “fear button” and my “FOMO button”.

    My response? If I ever want to take that money off the table, I will really take it off the table. Otherwise, I stayed fully invested in 1987, 2002 and 2008. Ups and downs are part of the game. It’s how I got to my current state. Needless to say, I’ll find other advisors to work with, although I doubt I’ll ever find one.

    • Chris Mamula says

      I started educating myself and then writing about my financial education after being sold a variable annuity, so you’re preaching to the choir.

      Here is some of my writing on the topic for those that don’t understand what they are:

      • The annuity that he was pushing, may actually be a “good” variable annuity. The surrender schedule was not insultingly bad, the objectives were clear and understandable, and the salesman did not appear to be hiding anything (except for the phrase “no-cost”). But at the end of the day, that kind of product only has appeal to someone who thinks they need to be “in the market” but refuses to educate themselves even a little bit.

        • Chris Mamula says

          Ha. It’s sad that the bar is so low for a “good” VA is that “the surrender schedule was not insultingly bad.”

          There are actually a few VAs that can be purchased without surrender fees. Vanguard offers one. A company called Jefferson National used to also, but they seem to have been acquired by Nationwide. Interestingly, when I talked to each of those companies, they tried to talk me out of pursuing a VA product until I explained that I only wanted to do a 1035 exchange into it as a better alternative to the lousy one my parents already owned. This is probably a pretty good sign that it is a “good” VA, as the bad ones are pushed aggressively for the high sales commissions.

          VAs are expensive and complicated investments that are not appropriate for most people. The one case where they MAY make sense is for someone who maxes out all other tax advantaged investments and has a tax inefficient investing strategy and so would benefit from some additional tax sheltered space. Even then, you would have to factor in increased investment/insurance fees and less advantageous taxation at withdrawal to determine if it makes sense.

          • Chris, you know that health insurance is my hot topic. The sales pitch for the VA came after this planner had led a seminar on health insurance. We all agreed that the purpose of health insurance is to cover major catastrophic expenses – not minor noise like the occasional doctor visit. The VA (Axa Structured Capital) is purchased to be “linked” (but not actually “invested”, as you have no visibility into that) to a particular market index. It might, for example, give you all market return of that index (minus fees) of up to 10%. Anything over that, the insurance company keeps. You are “protected” from losses less than 10%, but are exposed to losses greater than 10%. Which runs exactly opposite to what we want from our health insurance – the VA pays for the minor doctor visits, but you pay almost the full cost of anything catastrophic. Of course he had no answer to that observation.

  4. Are the top and bottom funds the same, year to year? I doubt it.

  5. Amen Chris. I got to FI using mostly Index funds and keeping it boring. It works, and better yet I spent practically zero time focusing on investments, which is another huge money-saver in itself

    • Chris Mamula says

      Agree Dave. I’m not convinced that you “can’t” beat the market. I’m just sure I don’t want to spend my time and money trying when it is very hard to do, and I can get satisfactory results with virtually no effort and minimal costs.

  6. Over a decade ago, I had a conversation with a software tool developer for Wall Street traders. I still remember him saying “market volatility is good”. Even though long term averages consistently show that buying and holding index funds is a good strategy for investors (which this guy agreed with), volatility causes churn and was good for his business. People feel they need to “do something” (hence, bought his tools/services to figure out what to do) to address market changes. The bigger the change, the better his business, regardless of the fact that the long-term trend was pretty constant.

    • Chris Mamula says

      See response to Mitch above. Don’t have to look very hard to find many instances of where this is true.

  7. I think the difficulty people have with investing is simply working out what they should invest in, risk aversion and a lack of income. It is easy to be smug and say just leave it in a passive index fund and to hell with the ups and downs if you earn enough to save enough to have a large buffer. The less you earn the more nerve wracking this strategy is and the more difficult it will be to be lazy and disciplined and stay the course as you are closer to the edge and will likely be more risk averse. I am not saying that it is still not the best thing to do to gain an early/éarlier retirement but for many it will be a challenge. The more I research and read the more the strategy makes sense to me and the more relaxed I am that there isn’t a better way and this is the way to go. But that has taken a fair amount of effort by me to cut through the bull and marketing surrounding investment. I imagine a lot of people stick to paying off their home and reduce their potential returns by misjudging their management of risk and the cost of their chosen savings vehicles.

    • Chris Mamula says


      I just wrote an entire book about this. People write about index fund investing as though it is the only way to invest. It is not.

      But if you are going to invest in the stock market, index funds will give you the best chance at long-term success. Index funds will get you to early retirement IF you can combine it with a high savings rate.

      If you can’t create a high enough savings rate, an index fund investing strategy won’t get you to early retirement. However, if you aren’t saving a lot of money AND think you can beat the market with an active trading strategy or worse yet thinking you can pick someone in advance who will, you are making a losing bet. You not only most likely won’t get to your goals, you will likely end up with a far smaller pot of money after fees and taxes for your efforts.

      I’m not saying index fund investing is the answer for everyone. I am saying for those that invest in the stock market, it gives the best chance of success while not requiring much time or effort. Many people think there is a short cut to beat the market by buying expensive funds or paying for expensive advice, and that short-cut doesn’t exist.

      If you can’t achieve the requisite savings rate to achieve FI with an index investing strategy, then I recommend choosing an alternative investment path in place of or along side an index investing strategy. That can include investing in real estate and/or your own business.


  8. Dean Trierwiler says

    I recently discovered something called a Self-Directed IRA (SDIRA). I haven’t seen that anyone here has mentioned them yet. SDIRAs allow the investor to control the investment of pre-taxed funds as they wish, rather than pay a fund manager to do so in the market. One has to be careful, and there are some special IRS rules that must be followed — but being able to invest in things you know about and are comfortable with is truly powerful. So far I have invested in: property we plan to purchase from my SDIRA one day (through a simple IRA distribution), the small business of a friend that is doing great, and a bio-fuel startup that another friend is involved in. For those interested in something more exciting than “simple and boring”, an SDIRA might be something to consider.

    • Chris Mamula says


      A SDIRA is a tax advantaged place to hold an investment and not an investment strategy. I do not have one, but my blogging friend Chad Carson is a real estate investor that uses them and has written about them.

      The strategies you are employing inside of the SDIRA make total sense to me (See my reply to Tim above). Investment strategies that make sense in my mind are index fund investing, real estate and investing in personal businesses. A possible 4th option is dividend growth investing, because some people find the increased income produced comforting, though it is a lot more work, less tax-efficient and unlikely to outperform a total return index fund investing approach. Hope that clarifies.


    • I think you may be confusing your terms. My IRA’s have always been “self directed”. They are brokerage accounts at brokers like Schwab and Fidelity. I have complete control over what I own. I own many individual stocks and several mutual funds. Mutual funds are where you give control to an investment manager, but that’s a characteristic of a mutual fund. Not of the IRA account itself.

      That said, I know that it’s possible to own real estate, collectibles and other assets inside the umbrella of an IRA. I have no experience with that.