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 a yearly 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 wound up broke. They’re extreme cases when people aimc trusted someone blindly, that is never a good idea once you invest money. In the event that you spend money on the right places you’ve government regulation and visibility on 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: 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 over 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 may pay 2% a year and still not get good investment management.
Most actively managed funds fail to beat their benchmarks (which are indexes), at the very least simply because of the expenses that are extracted from fund assets to fund things like 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 simply track or duplicate the index. Let’s use stocks for instance, and say that you want to invest profit 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 headlines every business day, and the names of the 500 companies are public knowledge and can very quickly be located on the internet. This index is also the benchmark that a lot of stock fund managers try, and usually fail, to beat on a constant basis. Is this your notion of good investment management? I’d rather just invest profit 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 not an issue in money market funds, where in actuality 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 can pay 10 times the maximum amount of once you spend money on actively managed funds vs. index funds, and still not get good consistent investment management. Do you want 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 significantly less than 25 cents annually for every $100 you’ve invested?
No, both largest fund companies in America can very quickly be located on the internet: Vanguard and Fidelity. They both cater to average investors, and will more than likely continue to offer funds where you could invest money without paying sales charges (in addition to expenses) in 2011, 2012 and beyond. It is advisable to take a look at their low-cost index funds. Or could you rather speculate and pay 10 times the maximum amount of 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 with them helping them to reach their financial goals.