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Par for the course. Over your lifetime IS above average!



Par for the course is considered to be average, un-exceptional. In golfing, Par is the reference to measure skill. In sports, it is easy to see who is above average. The World Golf Hall of Fame lists exceptional golfers. There are lists every year in investing too – who is beating what index.

But … with investing … is beating the average, or market, really your lifetime goal?

Why the golf analogy? Inspiration comes from this blog post by Professor Perry:

“…. is from Burton Malkiel writing in “The Random Walk Guide to Investing: Ten Rules for Financial Success:

‘It’s true that when you buy an index fund, you give up the chance to boast at the golf course that you picked the best performing stock or mutual fund. That’s why some critics claim that indexing relegates your results to mediocrity. In fact, you are virtually guaranteed to do better than average. It’s like going out on the golf course and shooting every round at par. How many golfers can do better than that? Index funds provide a simple low-cost solution to your investing problems.’

M(ark)P(erry): If I’m reading this USGA chart correctly golfing every round at par would make you a “scratch golfer” (0 handicap) and would place you in the top 2.5% of all golfers. And extending the index investing analogy, you don’t even have to practice or take lessons from golf pros to golf at par, and you get the additional benefit of paying much lower green fees (or private club fees) than most golfers! … ” Quotation of the day on index investing, it’s like being a ‘scratch golfer’ and shooting every round at par…. | AEIdeas.

What jumps out at me whenever I read lists of who did great, in sports or investing, is that the names change over time! Here’s the dilemma – you can’t identify who is great ahead of time. By the time they are recognized, it is too late to capitalize on knowing who they are (important for investing in order to “beat the market” averages).

Whenever you look at those lists of who’s doing good now, also look at how many names there are (and will be) over your lifetime. You would need to know WHO each one is, and will be, consistently over your lifetime to really beat market averages in a manner that matters.

You know what is easier? Play par for the course and simply index … you may receive market returns for each index in your allocation and may eventually – when measured in dollars - be ahead of trying to beat and time markets. At the end of the day, you can’t spend returns (with illusion you may successfully chase them) - you spend dollars.

Photo attribution: Greg Morss [CC-BY-SA-2.0], via Wikimedia Commons

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Comment   |  5 years, 7 months ago from Roseville, CA