What's That Word Again?

Ergodicity. 

That's the word.

And it simply means the difference between what can happen to a group and the individual. Just to recap, we often think that if the group (the ASX 300) returns 8% per year on average, then that is what you should receive. 

But this is not the case.  Buying a portfolio of individual stocks means you are more than likely to either outperform or underperform the index. That is why most fund managers don't outperform. It is very tough and statistically difficult to beat the market. It means most of your choices have to be better than all the others. It really is a David and Goliath battle. 

Perhaps the best reason for indexes is again down to ergodicity. 

The index doesn't go to zero. Individual stocks do. 

If you spend a little time thinking about this, you will reach the conclusion that it is an absolute no brainer why buying indexes mainly via ETFs is a really simple way to match the market return.

The way to improve that return is to simply rebalance, say monthly, or annually (for the tax benefits) and to make sure you don't run out of money. Because most of us work and receive an income, we can simply dollar cost average to take advantage of the volatility.

If you want to boost that, you can by simply understanding market cycles and how putting more money in at the lows can deliver even higher returns. And selling or rebalancing at the top is also beneficial to long term returns. 

And because you are buying an index that can not 'die', you should quickly see how easy investing really can be. 

There is no secret formula. It is all out there.

It is just that many of us believe we can't, as individuals, do it, but we can.