A recent study tested whether knowing future economic news could help traders make money. They set up a game where participants, including both experienced traders and beginners, had advance info about big economic events.

https://finance.yahoo.com/news/crystal-ball-breaks-traders-fail-114603440.html

The results were surprising: even the best traders only guessed the right market moves about 63% of the time. Beginners did even worse, losing money because they took too many risky bets. The study showed that just having good information isn’t enough to succeed in trading. It’s also important to manage risks properly, because market prices are made up of all the many stock market participants, who are trading for reasons known only to them. Just because you know what’s going to happen doesn’t mean someone else doesn’t think the opposite. For example, when the Federal Reserve cut interest rates recently, stocks didn’t go up as expected, proving that markets can be unpredictable. Overall, making money in trading is tough, even with a “crystal ball.”

I’ve said it before, and I’ll say it again – even the pros can’t beat the market with any consistency, what hope do you have?

The Efficient Market Hypothesis, which won its creator a Nobel Prize in economics, states that at any time, stock prices reflect the aggregate of all publicly available information. In other words, all known information is already “baked into” the stock price and the only way it will change is if the story changes. Any edge (known in finance as alpha) is only available if you have insider information, and while I personally have no problem with using an edge if you have it, the government doesn’t take as permissive a view on insider trading and has outlawed it. Except for Congress, they can do it. Nancy Pelosi’s husband just made a cool $500,000 by selling their Visa stock a day before it was announced that the company would be sued by the DOJ.

But unless you’re in Congress or you were part of the study above, you probably don’t have access to that kind of inside info

Your best bet to succeed is to invest in low-cost diversified market or sector funds, not by stock picking. I personally use and prefer index funds from Vanguard, but you don’t have to use them. Avoid trying to beat the market and just join it the cheapest way you can – with low expense ratios (fund fees) and low (or no) management fees

Here are the funds that I use:

• VTI – all publicly traded US stocks
• VBR – small cap value stocks (US)
• VXUS – all international stocks (excluding US)
• VNQ – real estate
• BND – bonds. I don’t currently own this, but as I get closer to retirement I might add it

There are many other fine funds out there, and I’m not telling you that you need to use these, but this is what I use and why.