Should You Own the Market Portfolio?
Two Nobel Laureates, two answers.
Most people who have studied investing believe that they should possess the market portfolio. With their U.S. stocks, they shouldn’t pick and choose; rather, they should own as many positions as possible, presumably through broad index funds. Ditto for their bonds as well as for their overseas holdings. This belief comes courtesy of Professor William Sharpe, who won a Nobel Prize for his troubles.
Of course, most investors don’t follow this precept precisely. They don’t hold a single broad-market index for each asset class. Nonetheless, if they invest through funds rather than through stocks directly, investors will end up owning something that approximates Sharpe’s recommendation.
John Rekenthaler does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.