Chase the Expected Returns—Not the Unexpected, Ep #161

I expect the stock market to go up every day. What do I mean by that? Is it a realistic expectation? In this episode of Best in Wealth, I dissect a Business Insider article written by David G. Booth about chasing expected returns. I also share WHY his opinion is one that matters. Don’t miss it![bctt tweet="As a long-term investor, you need to chase the expected returns—not the expected. I talk through what I mean in this episode of Best in Wealth! #wealth #retirement #investing #PersonalFinance #FinancialPlanning #RetirementPlanning #WealthManagement" username=""]Outline of This Episode[1:09] Listeners: I need YOU to weigh-in[4:04] Just who is David G. Booth?[11:36] What David Booth’s Business Insider article tells us[22:35] Why you should pursue expected returnsThree facts about David G. BoothThere are three facts you need to know about David G. Booth:Firstly, David Booth went to the University of Kansas and graduated with a Bachelors Degree in Economics and a Masters Degree in Business. He graduated in 1969 and went to the University of Chicago School of Business. The University of Chicago is where The Center for Research of Security Prices (CRSP) is. All of the information on all stock prices exists at the CRSP. If you’re reading research papers, they need to talk about the CRSP.Secondly, David Booth was the research assistant to Eugene Fama, the father of modern portfolio theory. He was named a Nobel Laureate and highly recognized in the field of finance. Thirdly, the University of Chicago School of Business is now called the Booth School of Business. Named after—you guessed it—David Booth.A brief—but important history—of David G. BoothDavid Booth left the University in 1971 to work for Wells Fargo. In the early 1970s, the very first index fund was developed—the S&P 500. Before this, every available mutual fund available was actively managed. This S&P 500 was only available to institutional investors. In 1976, John Bogle started Vanguard, with the first retail index 500 fund.In 1981, David left Wells Fargo and started Dimensional Fund Advisors (DFA). Why did he start a company? He believed that a small-cap index could be developed. People said no way—that trading costs would outweigh any benefits of being in an index fund. He didn’t care. So he built a board of directors including the brightest minds in financial market research. He proved everyone wrong. The small-cap index proved to be a winning strategy.[bctt tweet="In this episode of Best in Wealth, I share a brief—but important history—of David G. Booth. Why? You’ll have to listen to find out! #wealth #retirement #investing #PersonalFinance #FinancialPlanning #RetirementPlanning #WealthManagement" username=""]What’s different about Dimensional Fund Advisors?An index fund beats approximately 83% of actively managed mutual funds. The longer you hold, the better chance you have of beating the equivalent actively managed fund. The DFA manages over 600 billion dollars. They follow the science and build strategies around science.Since their inception, they’ve developed numerous successful strategies. Since 2000, only 17% of actively managed mutual funds beat the market. 84% of DFA funds beat the market. Index funds make up trillions of dollars worth of assets. Why is this important? Why am I telling you a story about David Booth? Because you need to listen to him.What David Booth’s Business Insider article tells usPlease Note: This is not a recommendation to purchase a specific index fund. It’s simply talking through an article by someone you should listen to.David expects the stock market to go up but isn’t upset when it doesn’t. He’s there to capture the long-term ups. The S&P 500 sees an average 10% annualized...