Introduction

Americans work hard. On average we log 7.6 hours each working day1, with many of us amassing far more hours to meet our current needs and secure our retirement. We are dedicated to our work and to saving for our "golden years."

Rarely in the course of this frenetic pace do we stop to learn how to properly invest our savings so they can best work for us.

I was one of those people. I was fortunate enough to start a successful company right after I graduated from college. I was thirty-two years old when I sold that company, and I walked away with a nice sum of money. Without giving it a second thought, I deposited that money with a big-name brokerage firm. They seemed to be looking out for my best interest and competent enough to grow my wealth through their stock-picking prowess. They had offices in high-rise towers. They had well-dressed analysts and impressive looking reports. I was confident they would effectively put my money to work for me.

Twelve years later, I woke up to the ugly truth that my confidence in that brokerage firm was unfounded, and my time spent trying to beat the market had been wasted.

Until that time, I believed the financial success of Wall Street brokerage firms was the result of creating wealth for their clients. I learned too late that brokerage firms did not get rich by enhancing their clients’ wealth, but rather (and ironically) by depleting it, transferring it slowly to their pockets in the form of commissions and margin interest that were in no way justified by the below benchmark returns. This steady transfer of funds from clients to brokers buys plenty of full-page ads in the Wall Street Journal and ample commercial time on CNBC to lure in even more clients, thus perpetuating the slow transfer of wealth that comes with each buy and sell.

Prior to my revelation, I lived with a nagging suspicion that my investments could do better. I suspected there was a better way to invest, but I never really had the motivation to find it. I was busy with my family and my work, and I could never put a finger on the risks I had taken or the returns I should have earned for those risks.

My revelation about the investment world came to me through a tragedy. A friend of mine was killed in a car crash. I told his widow I would help her in any way I could. A few years later, she said what she really needed was help with her investments. I knew she was relying on me to provide some good, solid help, and I also knew I was ill-equipped to give it.

"What do I know about investing?" I asked her. "My own portfolio hasn’t done that well." I knew I had to do some research. I knew I needed to find a better way to invest, and I needed to share it with her. I revisited the finance courses from my MBA program at the University of California, Irvine. I went to the library and the bookstore and bought more than 20 books on investing, and I read them all. (My library now includes 2,070 books on finance, economics, and investing dating back to 1648.) I dug into Burton Malkiel’s Random Walk Down Wall Street and John Bogle’s Common Sense on Mutual Funds, among many others. What I discovered in the pages of those books was nothing short of stunning, but can easily be summarized as this: managers don’t beat markets.

At first I asked, "How could this be? We have all these managers in the world who are in business to beat the market, and yet, they’re not beating the market. The market is beating them."

It struck me like a bolt of lightning: I didn’t just have the wrong brokers and managers, I had the wrong investment strategy altogether. With all of the time, effort and money spent trying to find the next hot stock or mutual fund manager, I would have been far better off had I simply bought, held and rebalanced a portfolio of index funds. How much better off? When I compared my own actively managed portfolio’s performance against the value of a risk-appropriate passively managed portfolio, I was struck with the harsh reality of the price I paid for my lack of investing knowledge. I call this my $30 million investment lesson.

I paid a very steep price for relying on an industry that profits handsomely when investors are kept in the dark. I wondered just how many others had paid a high price for too little knowledge and too much trust. I questioned how many more would suffer before the investment industry would awaken to its very own Howard Beale who would finally muster the courage to step before the CNBC cameras to declare, "I’m mad as hell, and I’m not going to take it anymore."

Awestruck by the glut of misinformation that served as the basis for poor investment decisions, I could not remain silent. I knew I had found my mission in life, and I was determined to change the way the world invests. The world-wide web provided the perfect medium for my task.

Just as in the movie "Network," in which Beale used the airwaves to deliver his message, I leveraged the Internet to deliver mine. In 1999, I launched what is now ifa.com, a free and comprehensive site that contains thousands of dynamic charts, graphs, articles, podcasts, books and videos to help investors learn about the value of a passive advisor with a fiduciary duty to its clients, one who advises on investments that can better capture the returns offered by markets around the world. At the same time, I launched Index Fund Advisors, Inc. (IFA), a fee-only financial advisory firm that works with individuals and institutions to invest in risk-appropriate portfolios properly matched to each investor’s risk capacity. With nearly 40 employees, 1,900 clients and $2.3 Billion in assets under management (March 2014), IFA’s mission has begun to become a reality.

This book incorporates the quality research and data that IFA uses to advance the financial futures of its clients. It is the same information I utilize daily to educate investors. Step by step, this book will lead you away from the pitfalls of active investing that threaten your long-term financial success and instead lead you toward a strategy that will efficiently put your money to work with the goal of providing you an all around better investing experience.

You work hard enough. You don't need to log any more hours or pay any more commissions to fund your broker's retirement instead of your own. Read the following pages carefully, as they hold the key to your ability to optimally reap the returns for the risks you take.

Yes, you can finally invest and relax.

– Mark T. Hebner

    -1 "American Time Use Survey," Bureau of Labor Statistics, June 18, 2014 http://www.bls.gov/news.release/atus.nr0.htm
Mark HebnerWall StreetBurton MalkielJohn BogleIndex FundsIndex Fund Advisors