The building block of understanding here is that an adequate savings rate combined with normal long term investment results offers a very good chance of leading to a successful outcome (a successful financial plan). That sentence has nothing to do with outperforming the market (although probably assumes truly stupid behavior is not repeated) it is simply about doing what your grandmother told you to do, save money and invest wisely (paraphrasing a quote from Nassim Taleb).
With that building block investors can then start to think about whether they want or need to be aggressive or conservative, buy and hold or trade, active or passive and any other choices that going into building a suitable portfolio.
This is not a DFA-esque argument for passive investing, this blog has always been from the view point of an active manager but that does not change the importance of understanding what merely being a participant can do for returns and active does not have to be about beating the market every year because no one does that. Many investors want to manage their volatility, usually dampen it. Managing for a higher dividend yield is also an active objective, not talking about a 7% yield in a 2% world. There are of course other concepts that investors will consider embedding as well.
And so this circles back to the Permanent Portfolio, All Weather, All Century and all others. Whether you undertake portfolio management as a professional or as a do it yourselfer the world and markets evolve and so should your investment process and part of that is exploring the way other folks perform the task.
This article was written by AdvisorShares ETF Strategist Roger Nusbaum.