Page 88 - Ready Set Retire

Stephen J. Kelley

Ready Step 6: Go Tactical

We often hear the mantra, “no one can beat the
market.” Honestly, I have used that line myself.
The truth is it’s a form of verbal shorthand
meaning, “Fund managers rarely, if ever, beat the market, and
when they do, it is more often than not a coincidence.”
That statement is true for several reasons. Mutual funds are a
“buy and hold” strategy. They often have many holdings, and
so it is often difficult to know everything you are holding,
especially if you have a mix of funds.
We often find people holding several, or even, many, funds,
thinking they are diversified. Why wouldn’t they? Funds often
have names that would imply diversifications. Take American
Funds, for example. Its top five funds, based on market cap,
are American Balanced Fund, Income Fund of America, Euro
pacific Fund, Growth Fund of America, and Capital Income
Builder Fund. Those sound wildly different, don’t they? You
might think just by holding some of each you would be widely
diversified. Until you consider this chart:

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