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 kind of hedge funds, without any performance guarantees. On the other hand, average investors can invest and get good investment management at an annual cost of 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 wound up broke. They are extreme cases when people aimc trusted someone blindly, which can be never a good idea whenever you invest money. In the event that you purchase the best places you have government regulation and visibility on your side. Plus, there ought to be no surprises on the performance front; with downright inexpensive and good investment management working for you. Welcome to the planet of mutual funds, specifically no-load INDEX funds.
Here’s how not to invest for 2011 and beyond: provide a money manager total freedom to invest your money wherever he sees opportunity. No investment management outfit is sufficient 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 a number of mutual funds and diversify both within and throughout the asset classes: stocks, bonds, money market securities and specialty areas like gold and real estate. But be careful here too, because in ACTVELY managed funds you could 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 very least in part due to the expenses which can be taken from fund assets to fund such things as active management. Plus, fund performance may 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 for example, and say that you intend to invest money in a diversified portfolio of the largest best-known stocks in America, without any surprises.
Invest in an S&P 500 index fund, and you automatically own a very small 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 simply be on the internet. This index is also the benchmark that a lot of stock fund managers try, and usually fail, to beat on a regular basis. Is this your notion of good investment management? I’d rather just invest money in the index fund for 2011 and beyond and understand that I’ll haven’t any big surprises in good years or bad.
Don’t overlook the fee whenever you invest money. Index funds are not an issue in money market funds, where in fact the major fund companies have kept costs low merely to compete for investor dollars. But for equity (stock) and bond funds, where they make their profits, you can pay 10 times just as much whenever you purchase actively managed funds vs. index funds, and still not get good consistent investment management. Do you need to look far and wide to locate a place where you can purchase stock and bond index funds at a high price of less than 25 cents per year for every single $100 you have invested?
No, the 2 largest fund companies in America can simply be on the internet: Vanguard and Fidelity. They both focus on average investors, and will most likely continue to offer funds where you can invest money without paying sales charges (in addition to expenses) in 2011, 2012 and beyond. I suggest you have a look at their low-cost index funds. Or would you rather speculate and pay 10 times just as much for yearly expenses elsewhere, hoping to obtain excellent active investment management – without any unpleasant surprises?
A retired financial planner, James Leitz comes with 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.