Generally tracking an equity index for the equity portion of the portfolio is not going to be suitable for every market participants. Two simple examples would be dividend oriented investors or investors who are not comfortable enduring the normal ups and downs of the stock market.
In round numbers, the S&P 500 yields about 2% and has for quite a while. Building a dividend oriented portfolio is a form of active management and would likely look different than the S&P 500. Arguably, the primary goal of a dividend oriented portfolio is not to beat the S&P 500 over some short or long period of time, although it might, the goal is probably to generate an income stream. In the last five years the S&P 500 is up 125%. If in that time a dividend oriented portfolio is up 100% and the income stream from dividends has also gone up 100% is the owner of that portfolio a failure?
The same would apply to a low volatility portfolio that prevents someone from panic selling after a large decline and staying on the sideline while the market goes right back up.
The idea of why do it if you don’t enjoy it is very important. Most people can manage their portfolios provided that are willing and able to put in the time and are capable of continuing to learn. How interested are you in investing and markets? Probably very interested if you’re reading this site. OK, but how interested are most of your friends? Very few of my friends are interested.
The bottom line for most people, repeated for emphasis, is having enough when they need it and most people will get there by having an adequate savings rate and, with a nod to Munger, not being consistently stupid.
This article was written by AdvisorShares ETF Strategist Roger Nusbaum.