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 famous brands hedge funds, without any performance guarantees. On another hand, average investors can invest and get good investment management at an annual 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 ended up broke. They are extreme cases when people aimc trusted someone blindly, that is never recommended once you invest money. If you purchase the proper 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 world 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 money wherever he sees opportunity. No investment management outfit is good enough 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 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 might 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 simply due to the expenses that are taken from fund assets to cover such things as active management. Plus, fund performance may be packed with 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.
Spend money on 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 located on the internet. This index can also be the benchmark that most stock fund managers try, and usually fail, to beat on a steady 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 have no big surprises in good years or bad.
Don’t overlook the fee once you invest money. Index funds are no problem in money market funds, where in actuality the major fund companies have kept costs low just 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 purchase actively managed funds vs. index funds, and still not get good consistent investment management. Do you need to appear far and wide to discover a place where you are able to purchase stock and bond index funds at a high price of significantly less than 25 cents annually for each and every $100 you have invested?
No, the two largest fund companies in America can very quickly be located on the internet: Vanguard and Fidelity. They both appeal to average investors, and will most likely continue to offer funds where you are able to 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 can you rather speculate and pay 10 times just as much for yearly expenses elsewhere, hoping to have great active investment management – without any 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 together helping them to achieve their financial goals.