The fundamental question is: How much can I afford to lose? Some people shouldn't be in stocks, period. But there is always some risk in whatever you're investing in. There is a study on retirement research that shows that when people see something like a hedge fund manager [being] prosecuted, they take their money out. Now, not investing in something because something happened doesn't make sense. Something will always happen. It's life. The question is can you go to sleep at night knowing this is your strategy?
You write that investors should invest passively because index funds are the market. Some people might say that investing in active equity funds is a good idea now because it's a stock picker's market. What do you say to that?
There is a fallacy there. If you go into an active fund, you assume that you have a manager who knows the future. You have to prove those decisions weren't simply luck or chance. Most managers won't pass that hurdle. Most can't prove they have that skill. It just isn't a good probability.
Why did you decide to write about Keynes?
After a while, I didn't think I'd write another book. I thought, "No one really wants to invest in stocks when market is down. Investors have been gun-shy about stocks since 2008. Most people don't want to listen to that advice." Then someone approached me and said, "Hey, maybe you could write about this guy's portfolio." And I realized that a lot of economists who are familiar with his work had no idea what he invested in. I approached Paul Krugman [at a book signing], one of the biggest Keynesians, and asked him, and he said he didn't know!