There seems to be a certain obsession with "Beating the Market".
There is no doubt that great fortunes have been made by beating the market. Having been in the hedge fund industry, I've seen some people who have that ability. But most of the time I see managers who are turning over their portfolios rapidly and perhaps taking risks that are not always apparent until they slap you in the face (liquidity, concentration, etc.).
In looking at the long term records of some very successful hedge fund and mutual fund managers, some of those that "beat the market" often do so by a very small percentage. And guess what? To get that return you would have to have been invested with them from day one, often when they are very small and very nimble. And most of those numbers do not show the after-tax return.
So, how do you beat the guy who wants to beat the market? You get very boring and buy index funds. You rebalance once or twice a year if necessary, and resist the urge to second-guess yourself. A simple portfolio can be created with just the Vanguard Total World Stock ETF (NYSEARCA:VT) and the Vanguard Total Bond Market ETF (NYSEARCA:BND). Or if you want to get fancy you can go with the Vanguard Total Stock ETF (NYSEARCA:VTI) for domestic stocks and the Vanguard Total International ETF (NASDAQ:VXUS) for international stocks and stay with BND for your bond exposure.
There are only two holes in this strategy. The first is there is no international bond exposure. Vanguard last year said it was launching the Vanguard Total International Bond Index Fund (VTIFX), but has delayed the launch. If that fund launches, you could make a case for splitting your bond assets between it and BND.
The other hole is that if you have a taxable account, you might want to consider a municipal bond fund instead of BND. Most people have a mix of taxable and non-taxable accounts. You could own BND in the non-taxable portion and look to a good municipal bond fund if one is available in your state, like the Vanguard California Intermediate-Term Tax-Exempt Fund (VCAIX) or the Vanguard Massachusetts Tax-Exempt Fund (VMATX) for your taxable account.
By keeping transaction costs, fees and taxes as low as possible you capture as much of the market's return as possible. You will beat most of the guys trying to beat the market. But you will never be a Warren Buffett or get on the cover of Fortune because boring does not sell.
Additional disclosure: Baldwin Partners Group, LLC is a state registered investment advisor. Alex Bentley is the CEO, Founder and an investment advisor representative of Baldwin Partners Group, LLC.