The Little Book of Main Street Money: 21 Simple Truths that Help Real People Make Real Money

Chapter 10. Aiming for Average Is the Only Sure Way to Win

Why the Meek WillInherit the Earth

To earn healthy returns, we need to take risk. But what if our risk-taking isn't rewarded?

This, I fear, is an all-too-common occurrence. Hungry for supercharged returns, investors bet heavily on a few stocks or some high-flying stock mutual funds, only to find that they're earning lackluster returns as the broad market charges ahead. But such setbacks don't deter the gambling set. These folks roll the dice again and again, hoping that their luck will turn. Like lottery ticket buyers, they are buoyed by the occasional small win and they dream of the investment jackpot. But the jackpot never gets hit and their eventual retirement proves to be a penny-pinching affair.

Their mistake: These folks fundamentally misunderstand what stock market investing is all about. We don't invest to beat the market, get rich, or earn the highest possible return. Money isn't an end in itself. Rather, it is a means to other ends. We invest to meet our goals, whether it's buying a home, putting the kids through college, or paying for our own retirement.

Meeting Our Match

What strategy will give us the greatest chance of reaching our goals? Earning market-beating investment returns would certainly help. Trouble is, if we try to beat the stock market, we also run the risk of lagging behind. The two outcomes, however, are far from equal. In one scenario, we retire richer. In the other, we may not retire at all. Given ...