There are two kinds of investors, be thay large or small: those who don't know where the market is headed, and those who don't know that they don't know.

You have to understand what market history looks like. What market history tells you is that the very, very best investments are made when things look the worst.

A decade ago, I really did believe that the average investor could do it himself. I was wrong. I've come to the sad conclusion that only a tiny minority, at most one percent, are capable of pulling it off. Heck, if Helen Young Hayes, Robert Sanborn, Julian Robertson, and the nation's largest pension funds can't get it right, what chance does John Q. Investor have?

No one in his right mind would walk into the cockpit of an airplane and try to fly it, or into an operating theater and open a belly. And yet they think nothing of managing their retirement assets. I've done all three, and I'm here to tell you that managing money is, in its most critical elements even more demanding than the first two.

The essence of effective portfolio construction is the use of a large number of poorly correlated assets.

While it is probably a poor idea to own actively managed funds in general, it is truly a terrible idea to own them in taxable accounts... taxes are a drag on performance of up to 4 percentage points each year... many index funds allow your capital gains to grow largely undisturbed until you sell... For the taxable investor, indexing means never having to say you're sorry.

The typical fund company services 401k plan participants in the same way that Baby Face Nelson serviced banks.