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

Published on 10/24/2026 · Source: cnbc.com

AI Summary

Summarized by AI from the source below

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.

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Our take

Opinion from the Newsstocks AI desk, not investment advice

We think the article suggests retail investors may struggle to beat the market using complex strategies and are likely better served by broad index funds. The statements highlight ongoing human biases and resource disparities between individual investors and institutional firms. If retail investors improve understanding of ETF holdings, they may better balance risks and opportunities.

Key numbers

Investment time comparison: 30 years

What could help

Sophisticated funds with focused holdings can provide thematic exposure and income opportunities.

What could hurt

Retail investors face difficulty generating returns above the market due to competition from large firms with substantial resources.

The background

A market index fund holds many stocks to match overall market performance. ETFs are tradable funds that can be simple or complex. Retail investors often seek strategies to outperform the market but face strong competition from large firms.

Questions readers ask

Why does Victor Haghani think retail investors are not more sophisticated than 30 years ago?

He believes retail investors still suffer from human biases like extrapolation bias, leading them to mistakenly expect recent trends to continue.

What investment approach does Elm Wealth recommend for retail investors?

Elm Wealth recommends broad market index funds over complex individual stocks or ETFs, as these are more cost-effective and less difficult to manage.

What role do sophisticated funds play, according to RBC Capital Markets?

Sophisticated funds with limited stocks offer thematic exposure and derivative-based products can be used to generate income, but investors must understand the holdings and risks.