Individual investors have many advantages over institutional and billionaire investors in the stock market, says a leading investment author and analyst.
Renown Investment Author
James B. Cloonan, the founder of the American Association of Individual Investors and author of a new book “Investing at Level 3”, writes that investing history shows:
- Active individual investors can reasonably earn up to a 16% annual compound return over the long run.
- Passive individual investors can earn a 12% annual compound return with a long-term horizon.
- The Modern Portfolio Theory typically reduces institutional and billionaire investors to an 8% average return.
Cloonan, who earned an MBA from the University of Chicago and a PhD from Northwestern University, has spent a lifetime studying investment theories—their limitations and applications. He supports the claims in his book with firsthand evidence and historical data.
Passive Investor Tip
An investment example for passive investors, according to Cloonan: Place all your investment money in the Guggenheim S&P 500 Equal Weight (RSP) exchange-traded fund (ETF). Reinvest dividends in this fund, and then forget it until 5 years before you retire or plan to withdraw the funds.
He writes that it will outperform most mutual funds, hedge funds and money managers with an estimated 12% compound return over the long run.
Active Investor Suggestion
Cloonan encourages active investors to abandon the rules of the Modern Portfolio Theory and focus on a number of ratios—especially low P/E ratios and low capitalization rates. The rewards are great and reasonably attainable, which he demonstrates in his book.
Note: This article is for informational purposes only and does not constitute tax, legal, financial or investment advice. Any information provided in this article is based on sources believed to be reliable, but is not guaranteed by the Rainbow SIG Members of Mensa, Chicago Area Mensa or American Mensa, Ltd, and is not a complete summary or statement of all available data necessary for making tax, legal, financial or investment decisions. No information contained in this article or on this website constitutes tax, legal, financial or investment recommendations or advice.