Broad-market index ETFs
Buy the whole market in one go: the index itself can't go bankrupt, it renews itself automatically, and it costs the least.
In One Sentence
Buy one fund that tracks the whole market, and you become a shareholder in hundreds, even thousands, of companies.
Why It Matters
I've studied individual stocks and bought sector ETFs, and in the end I kept only the broad market. Very few companies make big money for their shareholders, and you can't pick them out ahead of time; buy the whole market and you don't have to guess. An index regularly drops companies in decline and adds rising ones, and it costs the least, too. Sector funds and high-dividend funds don't count as buying the whole market.
One Number
Of the 26,168 companies listed in the US at some point between 1926 and 2019, 57.8% ended up shrinking their shareholders' wealth, and half of all the wealth created came from fewer than 100 of them (Bessembinder 2021 · Chapter III).
In the Book
It comes up in all nine chapters: Chapter III likens buying the broad market to becoming the owner of the whole market; the "What to Own" section of Chapter V explains why I buy only the broad market; and Appendix 1 in the Appendix tells how I got here.
Go Further
- Single-stock risk Most individual stocks lose their shareholders money over the long run.
- Active vs. passive About nine in ten actively managed funds trail the market over the long run.
- Dollar-cost averaging It's exactly what you buy every month with dollar-cost averaging.
- Global diversification One step further is buying the whole world.
- John Bogle The father of the index fund: buy the whole haystack.
- Luck Own the market, and you share in everyone's good luck.