 Remember Jack Bogle you get what you don't pay for it's true. So I want to convince you of two things get real and Arithmetic still works Now forget real which is better earning 10% when inflation is 12% or Earning 3% when inflation is 2% Which do you think makes people happier? We like to see the balance go up even if the spending power is going down so stocks This is all speculative, but stocks may have a real inflation adjusted return of let's say 5% annually high quality bonds Maybe 1% So that means a 50-50 portfolio might in the long run beat inflation by 3% So how much of it do you want to give away? Now I ran something by Mike Piper on a spreadsheet last night But I should have run this by 3-2 does equal 1 right? Yeah, Mike Mike agrees. He's nodding So the most brilliant paper you'll ever read is three pages and incredibly simple By Nobel laureate William Sharp arithmetic of active management and what it says is That if the stock market let's just to find it as the US stock market earns 10% The average dollar invested is going to earn 10% Lest the fees and by the way, that's over any period of time year to date 20 years etc. And Rick is right over the long period of time The total stock funds do better and better and better So the doctor analogy the first time I met Gus Souter who was the chief investment officer of Vanguard and was Launched the Vanguard total stock index fund he gave me this analogy if you needed heart surgery Would you find the cheapest heart surgeon or the best? What's wrong with this analogy and by the way, he gave me this analogy is what other active managers were using My doctor wouldn't have to make somebody else die in order to make me live The stock market is a zero-sum game. We do not live in Lake Wobe gone We're 90% of us are above average So how much do you want to give up between fees? The expense ratio hidden fees bid ask market impact hedging etc advisor fees my hourly rate is a drag on Returns emotions Taxes and remember tax or chart taxes are charged on nominal basis not inflation based So I showed you this slide earlier and again, it's incredibly important the cost of emotions Those are very very large 1.7% so if you think about it if a 50-50 portfolio Might earn 3% above inflation If we pay 1% in fees to the fund managers our Financial planner investment advisor, etc. We give up another 1.7% in emotions and the government taxes us that that tax number is much lower because the active fund is going to have lower returns and Be a little bit more tax-efficient from that standpoint, which is not a good thing So, you know, maybe the average investor loses seven percent of his point seven percent of a spending power This is illustrative So the Vanguard total stock index fund Christine showed this slide boy. I'm really glad that we both came out with 4052 holdings whoo an Expense ratio of 0.03% plus a vanguard Returns all the profits from securities lending So the net cost is even less than that the total capital gain distributions of the last 10 years is Zero and by the way, a lot of active fund managed a lot of active fund holders are going to get 1099s this year When their value has gone down because they've sold stocks within the portfolio So mathematically the average dollar invested in us stocks over any period of time must be higher for Vanguard total stock then active funds, right? This next slide from a research company. I shouldn't have used their name It was very very stressful to me because what it shows is that the Vanguard total stock index fund Underperformed its peers by 1.7% 73% year-to-date of mutual funds bested the total stock index fund I Can't tell you how stressful that was for me and how much research I spent to get to the bottom of it and How I got to the bottom of it is what Rick showed is that the S&P 500 index fund year-to-date beat most of its peers And then there's another fund out there called the extended market index fund Which are every company based in the United States. That's not in the S&P 500 and both of those beat their peers so how could the sum of the two beat their peers and John Wreckenthaler helped me get to the bottom of this Morningstar has changed the way it looks at the total market. It used to be a third growth a third value and a third core now growth is much Larger so it doesn't look I argue the market is the market. It's neither growth nor value if you own everything you own everything so John Wreckenthaler is just absolutely brilliant and you really know Somebody who's good when you disagree with them and they get to the bottom of things So as he puts it owning a low-cost market cap weighted index fund is both psychologically and Mathematically superior so we hate to lose money. I've lost money this year But I know that I've lost less money in the US market than most other people So the most important sentence I've ever written on investing is minimize expenses and emotions maximize diversification and Discipline it's that Simple so conclusion you can have a bad low-cost portfolio, but you can't have a good high-cost Portfolio I could have had everything in a low-cost Russian index fund and that wouldn't have worked out all that well Not very diversified. So John Bogle gave us access to low-cost and high diversification It's up to us to manage discipline and emotions Smart beta was the rage about 10 years ago. Let's put everything in value equal weighted Small-cap momentum and that's active investing. I embraced dumb beta Which Christine was nice enough to Interview me on the long view and appropriately titled why I embraced dumb beta So understand what Jack Bogle meant by the tyranny of compounding of costs on our financial freedom Costs must be low diversification high