CAN invest money and get good investment management quite cheap. Some rich folks pay over 2% annually plus 20% of profits to invest money with the kind of hedge funds, without performance guarantees. On the other hand, average investors can invest and get good investment management at a yearly cost of significantly less than 25 cents per $100 they invest while enjoying other advantages in 2011 and beyond.
Some of the rich and famous have paid handsomely for investment management and finished up broke. They’re extreme cases where people aimc trusted someone blindly, which will be never a good idea when you invest money. If you purchase the right places you have government regulation and visibility on 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 not to invest for 2011 and beyond: give 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 mindful here too, because in ACTVELY managed funds you may pay 2% annually and still not get good investment management.
Most actively managed funds neglect to beat their benchmarks (which are indexes), at the very least partly as a result of expenses which are extracted from fund assets to cover such things as active management. Plus, fund performance can be high 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 want to invest money in a diversified portfolio of the greatest best-known stocks in America, without surprises.
Invest in an S&P 500 index fund, and you automatically own a very small little bit of 500 of America’s biggest and best companies. The S&P 500 Index is in the news 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 most stock fund managers try, and usually fail, to beat on a steady basis. Is this your concept of good investment management? I’d rather just invest money in the index fund for 2011 and beyond and understand that I’ll don’t have any big surprises in good years or bad.
Don’t overlook the price when you invest money. Index funds are not an issue in money market funds, where in actuality the major fund companies have kept costs low merely to compete for investor dollars. But also for equity (stock) and bond funds, where they make their profits, you can pay 10 times just as much when you purchase actively managed funds vs. index funds, and still not get good consistent investment management. Do you need to appear far and wide to locate a place where you could purchase stock and bond index funds at a high price of significantly less than 25 cents annually for every single $100 you have invested?
No, the 2 largest fund companies in America can quickly be located on the internet: Vanguard and Fidelity. They both focus on average investors, and will most likely continue to provide funds where you could invest money without paying sales charges (in addition to expenses) in 2011, 2012 and beyond. I suggest you check out their low-cost index funds. Or could you rather speculate and pay 10 times just as much for yearly expenses elsewhere, hoping to obtain really good 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 using them helping them to achieve their financial goals.