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 any performance guarantees. On the other hand, average investors can invest and get good investment management at an annual 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 ended up broke. They’re extreme cases when people aimc trusted someone blindly, that is never recommended when you invest money. If you purchase the proper places you have government regulation and visibility on your side. Plus, there must 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: 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 in the event that you invest profit many different 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 cautious here too, because in ACTVELY managed funds you might pay 2% a year and still not get good investment management.
Most actively managed funds don’t beat their benchmarks (which are indexes), at least partly because of the expenses which are taken from fund assets to cover things like active management. Plus, fund performance can 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 simply track or duplicate the index. Let’s use stocks as an example, and say that you wish to invest profit a diversified portfolio of the greatest best-known stocks in America, without any surprises.
Purchase an S&P 500 index fund, and you automatically own a really small 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 simply be found 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 notion of good investment management? I’d rather just invest profit 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 fee when you invest money. Index funds are no problem in money market funds, where in fact 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 the maximum amount of when you purchase 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 are able to purchase stock and bond index funds at a cost of less than 25 cents per year for each and every $100 you have invested?
No, the 2 largest fund companies in America can simply be found 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 take a look at their low-cost index funds. Or can you rather speculate and pay 10 times the maximum amount of for yearly expenses elsewhere, hoping to obtain 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 using them helping them to achieve their financial goals.