When Investing in the Whole Market Does Not Work

Many people who have studied investing believe that owning the whole stock market, through a passive fund, is the best way to invest

John Rekenthaler 31 August, 2017 | 8:51AM

Eggs in a basket

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.

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About Author

John Rekenthaler

John Rekenthaler  John Rekenthaler is vice president of research for Morningstar.

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