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Eli Tyre's avatar

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AspiringRationalist's avatar

With a given average return per year, higher volatility will decrease your long-term returns. Index funds provide diversification by investing in a broad range of investments; concentrating your money in a few stocks doesn't, so if you pick stocks no better or worse than chance but don't diversify well, you will, on average, underperform index funds.

An even easier way to underperform index funds is to choose investments with high fees, such as actively managed mutual funds.

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