ElmWealth News & Analysis

Retail Investors Likely Better Off With Broad Index Funds, Says Elm Wealth CIO

Victor Haghani, founder and chief investment officer of Elm Wealth, said retail investors have not become more sophisticated over 30 years. He advised that retail investors trying to outperform the market with individual stocks or complex exchange-traded funds (ETFs) are better off investing in broad market index funds. Haghani highlighted that human biases like extrapolation bias persist, and that generating alpha (returns above the market) is difficult for non-professionals. He noted that large firms like Citadel and Jane Street generate money daily due to their resources, contrasting this with retail investors' limited opportunities. RBC Capital Markets' Valerie Grimba added that sophisticated funds with fewer stocks or derivative-based strategies can be useful for income or thematic exposure, but investors must understand the products they buy. This matters because ordinary investors face challenges competing with large institutional firms and may benefit from simpler, low-cost index funds. Understanding the nature and trade-offs of ETF strategies is important to avoid unintended risks or costs.