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 one other hand, average investors can invest and get good investment management at an annually 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 finished up broke. These are extreme cases where people aimc trusted someone blindly, which can be never recommended once you invest money. In the event that you spend money on the best 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 working for you. Welcome to the planet of mutual funds, specifically no-load INDEX funds.
Here’s how to not invest for 2011 and beyond: offer 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 a variety of mutual funds and diversify both within and across 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 can pay 2% a year and still not get good investment management.
Most actively managed funds fail to beat their benchmarks (which are indexes), at least in part as a result of expenses which are taken from fund assets to cover such things as active management. Plus, fund performance could be full of 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 want to invest money in a diversified portfolio of the largest best-known stocks in America, without surprises.
Spend money on an S&P 500 index fund, and you automatically own a really small piece 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 easily be on the internet. This index can be the benchmark that a lot of stock fund managers try, and usually fail, to beat on a consistent basis. Is this your notion of good investment management? I’d rather just invest money in the index fund for 2011 and beyond and know that I’ll have no big surprises in good years or bad.
Don’t overlook the cost once you invest money. Index funds are no problem in money market funds, where 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 once you spend money on actively managed funds vs. index funds, and still not get good consistent investment management. Do you really need to check far and wide to discover a place where you could spend money on stock and bond index funds at a high price of less than 25 cents each year for each $100 you’ve invested?
No, the 2 largest fund companies in America can easily be on the internet: Vanguard and Fidelity. They both focus on average investors, and will probably continue to offer funds where you could invest money without paying sales charges (in addition to expenses) in 2011, 2012 and beyond. It is best to have a look at their low-cost index funds. Or could you rather speculate and pay 10 times just as much for yearly expenses elsewhere, hoping to get really good active investment management – without unpleasant surprises?
A retired financial planner, James Leitz has an MBA (finance) and 35 years of investing experience. For 20 years he advised individual investors, working directly using them helping them to attain their financial goals.