This is the third of a five-article survival course designed to give you essential information you need to succeed as an investor in the stock market. None of it is mere opinion.

Everything stated in these articles is backed by the research of well-known economists and published in leading journals of economics and finance. Each article can be read in 10 to 15 minutes.

The first article summarized the generally poor stock market performance of individual investors and explained why: most persons begin investing with an inadequate understanding of the market and produce returns that underperform the market average by more than 60 percent. Active traders do even worse.

The second article established that while professional investors do better, in a given year only about 5 percent do as well as a broad-based index fund. In the long run, the number of investors who can beat the market is about what you’d expect in a random distribution of returns.

This third article begins outlining the market strategies that will substantially improve your investment results.

Attainable Investment Goals

If trying to “beat the market” is a bad strategy that accounts for individual investors’ low returns on their equity investments, what does a good strategy look like?

I’ve spent the first two articles documenting the research that shows that in the long run no one beats the market — that there are just too many variables for any “expert” or “expert system” to reliably predict what will happen in the market next.

I emphasized this because the first step to improving your investment results is to give up the goal of beating the market. That’s where the trouble starts.

This doesn’t mean you can’t beat the experts. You can, so long as you accept that trying to beat the market is unattainable and risky.

Aiming to come close to matching the market’s average return, on the other hand, produces surprisingly good results. Most investors underestimate both average market returns and the compounding power of reinvestment.

In “Stocks: The Asset of Choice for the Long Run,” Wharton economist Jeremy Siegel notes that after inflation stock market returns since the Second World War have average 6.8 percent annually. This means that if an investor could match the market’s historical average return, they’d double their money every ten years.

For the reasons given in the first two articles in this series, matching the market isn’t realistic. For one thing, you’d have to buy and sell without incurring transaction and administration fees.

But transaction fees have declined from an average of $45 per trade in the 1970s to under $10 at most discount brokers today. Many of the larger discount brokers even have extensive lists of equities you can buy and sell without a transaction fee.

So far as administration fees go, if you pick carefully, you can pay a small fraction of a percent each year. Using a discount broker and buying funds and ETFs with the lowest administration fees you can probably come within one percentage point of the actual market return.

To do this, it’s essential to avoid frequent trading; instead, buy and hold, which also reduces capital gains taxes, Using Siegel’s figures, that would give you about a 6 percent annual return after accounting for transaction and administration fees and inflation. At that rate, assuming you reinvest your portfolio earnings, you’ll double your money every 12 years.

That’s good, but as I’ll show you in the last article in this series, by combining the power of compounding returns with a regular investment plan, many readers — including those beginning to invest in middle age with average incomes — can retire as millionaires.

Even if your age and income won’t quite get you there, if you begin investing in the market today you’ll still do better than many American retirees. According to a 2016 Economic Policy Institute report, many Americans reach retirement age with no retirement savings at all!

Summary

An essential strategy for maximizing stock market returns is to avoid trying to beat the market. Instead, try to come as close as you can to matching the stock market’s average return by minimizing costs. This means buying and holding rather than trading frequently and minimizing transaction and management fees.

In the next article in this series, I’ll explain the best kinds of equities to buy and when to buy them.