CAN invest money and get good investment management quite cheap. Some rich folks pay over 2% per year 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 an annually 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 are extreme cases where people aimc trusted someone blindly, which can be never a good idea once you invest money. In the event that you invest in 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 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 if you invest profit 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 mindful here too, because in ACTVELY managed funds you might pay 2% per year and still not get good investment management.
Most actively managed funds fail to beat their benchmarks (which are indexes), at the very least partly as a result of expenses that are extracted from fund assets to fund things such 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 only track or duplicate the index. Let’s use stocks as an example, and say that you want to invest profit a diversified portfolio of the biggest best-known stocks in America, without surprises.
Purchase 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 headlines every business day, and the names of the 500 companies are public knowledge and can very quickly 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 steady basis. Is this your idea of good investment management? I’d rather just invest profit the index fund for 2011 and beyond and realize that I’ll haven’t any big surprises in good years or bad.
Don’t overlook the fee once 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. However for equity (stock) and bond funds, where they make their profits, you are able to pay 10 times just as much 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 find a place where you can invest in stock and bond index funds at a high price of significantly less than 25 cents annually for every $100 you have invested?
No, the two largest fund companies in America can very quickly be on the internet: Vanguard and Fidelity. They both cater to average investors, and will most likely continue to supply funds where you can 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 just as much for yearly expenses elsewhere, hoping to get great 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 achieve their financial goals.