Try to beat the market and you're likely to go the way of the David squashed by Goliath, though with high hopes. There are now too many experts that are much more skilled than you and they shave the premium off of picking better down to close to zero.
The 80/20 Person would pick Option 2 with very little work, no worry, no wishful thinking, and better results with higher odds of doing well. He learns that the high cost of management and portfolio turnover costs can be quite costly, as in Option 1 and 3. Of course, in #3, the person or his manager somehow gets lucky and beats the averages (though many actually end up lower, by chance), but his costs are still fairly high, so he doesn't win either - and is the most likely to have a greater variation on the downside.
The 80/20 Person buys a copy of "The Little Book Of Common Sense Investing: The Only Way to Guarantee Your Fair Share of Stock Market Returns," by John C. Bogle - and you'll probably use that group of no-load funds. (He/she could stop there and be fine, but eventually he/she might end up reading "The Truth About Money", by Ric Edelman.
The 80/20 Person spends very little time on the investment area, yet has high confidence in his/her approach, letting the fools try to beat the market.
One caveat: You may, but don't need to, hire a financial advisor, asking that all costs (including turnover costs and anything else deducted from the returns) be revealed, but only if you've passed at least $1,000,000. You'll get other advice that may be helpful. An unlimited amount of money can be invested using Option 2, however. The 80/20 Person would definitely, when about to retire or when above $500,000 hire a financial advisor on an hourly fee basis to add some strategies, such as the "lifetime annuity" strategy, as that is in the top 20%, on the key sister site.
