You may unnecessarily be paying the equivalent of 5 Porsche cars to the finance industry over your working life!
Check out my investing video series on www.kroijer.com. I used to run a hedge fund in London and published a couple of books on finance. Basically in the video series I argue that you are highly unlikely to be able to beat the market, and explain why that is important.
It’s as easy as watching a cute cat video online, except it’s about index funds! But if you spend six minutes watching the first video it may change how you think about investments. Also, it may save you reading 200 pages of an investment book or give you a good riposte for next time a broker calls you with a hot stock tip….
If you buy in to the message of the videos it could make investing a lot simpler going forward and you’ll probably be far less confused about all the choices out there. We are all much too busy to go through all the many investment choices and advice so the simple DYI message will probably be helpful to many. The philosophy that it’s ok to not be able to beat the market will help the young saver who is too busy making headway in a career to spend evenings and weekends trying to outperform. Anyhow, considering how important the message might be it’s certainly worth 6 minutes of your time…
The message is basically that if you can’t beat the stock markets (which most of us have no chance of doing) then the best investment would be to buy the cheapest and broadest index tracker of stocks – and this is a world equity index tracker. Some people have probably told you over the years to buy the S&P500 (good enough for Warren Buffet), but this is taking it a step further and tell you to diversify across the world. Crazily this may mean that your equity investment portfolio is just one stock, an ETF that tracks the world equity markets. Almost too simple to be good, but it really works.
In the videos I also argue that an individual investor buying shares in Microsoft effectively competes with a super plugged in and well informed/resourced portfolio manager for an advantage (or edge) in trading that stock. I call the portfolio manager Susan and in the video outline how she has better information, analytics, trading insight, management access and went to school with many of them, competitor analysis, historical context, gut feel, and so on, and we are perhaps left feeling a little silly that we would try to compete with her. But it is similarly important to note how very few of those same investment funds managed by pros like Susan actually outperform the markets over time. The fees eat away any advantage Susan may hold and as a result only about 1 out of 10 investment funds outperform the market over a ten-year period. The problem is of course that we have no chance of knowing which manager is the winning one out of ten ahead of time. Therefore: buy the broad market tracker.
Since equities are too risky for some investors you can combine the world equity exposure with the lowest risk investment you can find – typically government bonds – and that you can combine the two (50%/50%, 75%/25%, 25%/75%, etc.) to suit your risk profile. And job done. Who said investing was difficult.
Anyhow, enough from me. But please do give this five minutes of your time.
The series consist of five videos – here is a bit on each:
Video 1: Investing Demystified – (Intro Overview – Part 1 of 5)
The Investing Demystified video series is based on the premise that most investor can’t beat the market (or pick investment funds to do so for them). Those investors should only buy world equity index trackers for their equity exposure, and can easily implement the simple and cheap portfolio tailored to their risk profile. They will most likely be far better off in the long run as a result!
Video 2: Investing Demystified – (You can’t beat markets or pick a fund to do so for you – Part 2 of 5 )
Far too many people believe they can beat the market – and far too few people have any incentive to tell them otherwise.
Video 3: Investing Demystified – (Only buy cheap World Equity Index Trackers – Part 3 of 5 )
The only equity investment you’ll need to hold is a world equity index tracker – it is cheap and diversified. Crazy yes, but it really can be that simple.
Video 4: Investing Demystified – (The simple portfolio to suit your risk – Part 4 of 5 )
Vary the proportion of your portfolio that’s allocated to the lowest-risk assets – cash and government bonds – to suit your risk profile.
Video 5: Investing Demystified – (Implementing the Investing Demystified portfolio – Part 5 of 5 )
How to select the right products for your hyper-efficient best-in-breed passive portfolio, and how to keep your strategy on track.
DEW POINT METER
David Chen says
Interesting stuff . Thanks for sharing. I can certainly agree with people over spending on their investments, but your suggestion on investing into a world equity index tracker is something I will look in to.