After a vibrant 2023, the markets are taking a breather

Note that the average fund substantially lagged the broad stock market averages. Most funds are actively managed by professionals who try to beat the market. In contrast, broad, low-cost index funds, which simply tried to mirror the markets, generally did their job well.

For example, the Vanguard Total Stock Market Index Fund returned 12.3 percent for the quarter and 26.1 percent for the year, beating both the average fund and the S&P 500. That, in a nutshell, is why I think it's better for most people to use low-cost index funds.

Most global markets also performed well in 2023 – and as usual, the average fund lagged market returns. For example, a major global benchmark, the MSCI All Country World Index (often known as ACWI), returned more than 21 percent in 2023. The average international fund in the Morningstar database returned just 14.3 percent.

Of course, some individual stocks did much better than average. Nvidia, which makes advanced computer chips, rose 239 percent in 2023. Meta, Facebook's parent company, gained 194 percent after falling 64 percent the year before due to investor skepticism about the company's focus at the time on the so-called metaverse. But in 2023, these big tech stocks benefited from the artificial intelligence frenzy and lifted the S&P 500. Perhaps more surprising, cruise lines also boomed, with Royal Caribbean up 162 percent and Carnival up 130 percent. If you had focused on any of these stocks in early 2023, you would have been a winner.

On the other hand, most stocks performed worse than the averages. Dollar General, Moderna and Estée Lauder, all important stocks in the S&P 500, lost more than 40 percent in 2023.