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 kind of hedge funds, without any performance guarantees. On another 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.
A few of the rich and famous have paid handsomely for investment management and wound up broke. These are extreme cases when people aimc trusted someone blindly, which can be never advisable when you invest money. If you purchase the right places you have government regulation and visibility on your own side. Plus, there should be no surprises on the performance front; with downright inexpensive and good investment management working 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: offer a money manager total freedom to invest your cash 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 if you invest profit a number of mutual funds and diversify both within and across 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 can 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 least partly as a result of expenses that are obtained from fund assets to pay for 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 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 largest best-known stocks in America, without any 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 news every business day, and the names of the 500 companies are public knowledge and can simply be located on the internet. This index can also be the benchmark that many stock fund managers try, and usually fail, to beat on a consistent basis. Is this your idea of good investment management? I’d rather just invest profit the index fund for 2011 and beyond and understand that I’ll don’t have any big surprises in good years or bad.
Don’t overlook the price when you invest money. Index funds are no problem in money market funds, where 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 the maximum amount of when you purchase actively managed funds vs. index funds, and still not get good consistent investment management. Do you really need to check far and wide to locate a place where you could purchase stock and bond index funds at a high price of less than 25 cents annually for every $100 you have invested?
No, both largest fund companies in America can simply be located on the internet: Vanguard and Fidelity. They both cater to average investors, and will probably 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 would you rather speculate and pay 10 times the maximum amount of for yearly expenses elsewhere, hoping to get really good 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 using them helping them to achieve their financial goals.