Many people who have studied investing believe that owning the whole stock market, through a passive fund, is the best way to invest. They shouldn’t pick and choose; rather, they should own as many positions as possible, through broad index funds for both stocks and bond holdings. This belief comes courtesy of Professor William Sharpe, who won a Nobel Prize for his troubles.
Of course, most investors do not follow this principle exactly. They do not hold a single broad-market index for each asset class. Nonetheless, if they invest through funds rather than through stocks directly, investors will end up owning something that approximates Sharpe’s recommendation.
They will pay more than the annual 3 basis points levied by iShares Core S&P Total US Stock Market ETF (listed in the U.S.) or Schwab US Broad Market ETF (listed in the U.S.), and their portfolios will fluctuate around those benchmarks, but their results should not stray too far from the mark.
