CAN invest money and get good investment management quite cheap. Some rich folks pay over 2% a year plus 20% of profits to invest money with the likes of hedge funds, without performance guarantees. On another hand, average investors can invest and get good investment management at an annual cost of significantly less than 25 cents per $100 they invest while enjoying other advantages in 2011 and beyond.
A few of the rich and famous have paid handsomely for investment management and finished up broke. They are extreme cases where people aimc trusted someone blindly, which will be never a good idea once you invest money. If you invest in the right places you’ve government regulation and visibility in your side. Plus, there must be no surprises on the performance front; with downright inexpensive and good investment management employed by you. Welcome to the entire world of mutual funds, specifically no-load INDEX funds.
Here’s how to not invest for 2011 and beyond: provide a money manager total freedom to invest your hard earned money wherever he sees opportunity. No investment management outfit is adequate to win consistently speculating in the stocks vs. bonds vs. currencies, commodities or whatever game. You’re better off in the event that you invest money in many different mutual funds and diversify both within and over the asset classes: stocks, bonds, money market securities and specialty areas like gold and real estate. But be cautious here too, because in ACTVELY managed funds you may pay 2% a year and still not get good investment management.
Most actively managed funds neglect to beat their benchmarks (which are indexes), at the least partly because of the expenses which can be obtained from fund assets to cover such things as active management. Plus, fund performance could be saturated in surprises from year to year as management tries to beat their benchmark, an index. Index funds don’t pay big bucks to money managers to play this game. They just track or duplicate the index. Let’s use stocks as an example, and claim that you wish to invest money in a diversified portfolio of the biggest best-known stocks in America, without surprises.
Spend money on an S&P 500 index fund, and you automatically own a tiny piece of 500 of America’s biggest and best companies. The S&P 500 Index is in the news headlines every business day, and the names of the 500 companies are public knowledge and can quickly be located on the internet. This index can be the benchmark that a lot of stock fund managers try, and usually fail, to beat on a regular basis. Is this your concept of good investment management? I’d rather just invest money in the index fund for 2011 and beyond and realize that I’ll don’t have any big surprises in good years or bad.
Don’t overlook the fee once you invest money. Index funds are no problem in money market funds, where in fact the major fund companies have kept costs low simply to compete for investor dollars. But for equity (stock) and bond funds, where they make their profits, you can pay 10 times the maximum amount of once you invest in actively managed funds vs. index funds, and still not get good consistent investment management. Do you need to look far and wide to discover a place where you could invest in stock and bond index funds at a cost of significantly less than 25 cents per year for every single $100 you’ve invested?
No, both largest fund companies in America can quickly be located on the internet: Vanguard and Fidelity. They both cater to average investors, and will more than likely continue to supply funds where you could invest money without paying sales charges (in addition to expenses) in 2011, 2012 and beyond. It is advisable to check out their low-cost index funds. Or can you rather speculate and pay 10 times the maximum amount of for yearly expenses elsewhere, hoping to have excellent active investment management – without unpleasant surprises?
A retired financial planner, James Leitz posseses an MBA (finance) and 35 years of investing experience. For 20 years he advised individual investors, working directly with them helping them to reach their financial goals.