Jon Stein: Why I Created Betterment
If there really is no better portfolio than the market portfolio, why are there so many trading sites and so much emphasis on beating the market? Why doesn't anyone help consumers invest the way they should?
Even with this knowledge, as a novice investor, I thought that I could do better. My first stock pick? Enron. Fail.
This taught me an important lesson—I’m no smarter than the millions of other people watching the market, and I don’t have better information. The cardinal lesson of modern portfolio theory—that there’s no better portfolio to own than the market portfolio—is a lesson to live by.
If there really is no better portfolio than the market portfolio, why are there so many trading sites and so much emphasis on beating the market? Why doesn’t anyone help consumers invest the way they should?
All of these alternative sites exist because humans are predictably irrational. We tend to think we’re better than average, on average. We intuitively think we can outperform. The whole brokerage and investment industry has grown to serve these irrational behaviors—and as a result, they don’t serve the individual consumers’ best interests.
I started Betterment to re-invent the investing industry—so that it would work as we want it to. What we really want, when we consider things rationally, is the best return (factoring costs) for the least risk. So what we really need is a convenient way to invest in the market portfolio.
Betterment provides this.
I remain committed to making the best investment product for consumers. If you have ideas or feedback for Betterment, I’d love to hear them.
– Jon Stein
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