The Wisdom of Crowds

Don and Tom start with the classic “jelly beans in a jar” experiment to explain the wisdom of crowds and why large groups often produce surprisingly accurate predictions. That idea leads to a discussion of modern prediction markets like Kalshi and Polymarket, which sometimes outperform professional economists when forecasting things like GDP, inflation, or Federal Reserve decisions. But the hosts emphasize that these predictions ultimately don’t matter to investors, pointing instead to the long-term evidence that active fund managers consistently fail to beat the market. They highlight massive investor flows away from active funds toward index and rules-based strategies and remind listeners that successful investing is far simpler than many believe: save regularly, diversify broadly, keep costs low, and avoid emotional decisions. Listener questions cover tax-efficient asset location across account types, retirement withdrawal strategies including the 5% variable rule, and why short-term differences between funds like AVUV and DFAS are largely irrelevant.

0:04 Jelly beans and the “wisdom of crowds” analogy

2:24 Prediction markets and why crowds sometimes beat expert forecasts

3:29 Research showing prediction markets rival or outperform professional economists

6:01 Why gamblers may make better predictions than professional forecasters

7:04 Betting on prediction markets themselves and recession/interest-rate predictions

8:08 Why economic predictions ultimately don’t matter for investors

8:19 $1 trillion outflow from active mutual funds and the shift to passive investing

9:39 SPIVA data showing 98% of active funds underperform over 10 years

10:46 Index funds vs “rules-based” or evidence-based funds

11:43 The dramatic shift from active to index investing over the past decades

12:41 Why investors don’t need forecasts to succeed

14:28 Listener question: Asset allocation across taxable, IRA, and Roth accounts

17:14 Listener question: RMD timing and the 5% variable withdrawal strategy

20:36 How the 5% variable withdrawal approach works in retirement

22:36 Listener question: AVUV vs DFAS performance differences

24:48 Why short-term performance comparisons are largely meaningless

26:15 Market timing losses despite a strong 2025 market

27:10 Final reminder: No one can predict the future, not even brokers