CAN invest money and get good investment management quite cheap. Some rich folks pay over 2% annually plus 20% of profits to invest money with the likes of hedge funds, without any performance guarantees. On the 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.
Some 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, which can be never advisable when you invest money. In the event that you spend money on the proper places you’ve government regulation and visibility in your side. Plus, there ought to be no surprises on the performance front; with downright inexpensive and good investment management doing work for you. Welcome to the entire world 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 cash 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 if 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 mindful here too, because in ACTVELY managed funds you may pay 2% annually and still not get good investment management.
Most actively managed funds don’t beat their benchmarks (which are indexes), at the very least simply due to the expenses that are extracted from fund assets to cover things like active management. Plus, fund performance could be saturated 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 instance, and say that you wish to invest money in a diversified portfolio of the greatest best-known stocks in America, without any surprises.
Invest in an S&P 500 index fund, and you automatically own a really small little 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 easily be located on the internet. This index is also the benchmark that many 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 money in the index fund for 2011 and beyond and realize that I’ll have no big surprises in good years or bad.
Don’t overlook the fee when you invest money. Index funds are no problem in money market funds, where the major fund companies have kept costs low simply to compete for investor dollars. But also for equity (stock) and bond funds, where they make their profits, you can pay 10 times as much when you spend money on actively managed funds vs. index funds, and still not get good consistent investment management. Do you want to appear far and wide to locate a place where you could spend money on stock and bond index funds at a high price of significantly less than 25 cents each year for every single $100 you’ve invested?
No, both largest fund companies in America can easily be located on the internet: Vanguard and Fidelity. They both appeal to average investors, and will more than likely continue to supply funds where you could invest money without paying sales charges (in addition to expenses) in 2011, 2012 and beyond. It is best to check out their low-cost index funds. Or would you rather speculate and pay 10 times as much for yearly expenses elsewhere, hoping to get great 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 with them helping them to reach their financial goals.