When in Doubt, Start By Keeping Investing Simple
By Floyd Saunders, The Author of Five Paths To Wealth, Family Financial Freedom and Figuring Out Wall Street.
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When you are just starting out with investing in the stock market, sticking to the basics is a good idea. After all you had to learn to walk before you started running, and that basic idea applies to investing as well.
Paul Price writing for Real Money says, “On Wall Street, sponsors of investment products go out of their way to suggest complex offering for retail investors (like you and me). These typically charge hefty management fees and commissions.”
Price references an Oct. 2 article at Barrons.com indicating that hedge funds are having a banner year, returning on average 13 percent for the year. Yet a simple investment in an S&P 500 index fund would have returned over 20 percent.
The average return on those hedge funds was 35 percent less than just holding your money in an index fund tracking to the S&P500 index.
Price also points out that “crptocurrencies are today’s hottest investment, despite the fact that nobody can make a case for what they are truly worth, if anything at all.”
If you are just starting out, it’s still best to stick with those really simple investment products that you understand and helps you reduce the amount of risk you are taking on. Trust me your future self, your accountant and the balances in your IRA or 401k plans will all thank you.
Why Index Funds
With an index fund, you should get the same return as the index, minus fund-management costs, so it makes sense to buy into an index fund with the lowest management fees. In most cases, Index funds have better returns than than similar actively managed funds.
An index fund’s portfolio rarely changes. This stability results in lower trading costs and taxes. The fund’s operating costs are reduced, because there’s no need to hire portfolio managers or stock researchers, or to pay commissions that arise from constant trading.
Plus you are buying parts of hundreds of companies at once rather than single stocks as you create your own portfolio.
This diversification cuts back on risk. Remember investing should be boring, a lot like watching paint dry. Most investors that look for only short-term profits by actively trading stocks, miss out on the opportunities that come with taking a long-term perspective, holding on to investments for a longer time period and enjoying the benefits of reinvesting dividends. It's boring, but it works.
You can learn more about investing and managing your money to be more financial secure by reading Five Paths to Wealth. Five Paths to Wealth is available in both paperback and eBook formats from Amazon.
Other books by Floyd Saunders include Family Financial Freedom and Figuring Out Wall Street.
You can learn more about him at his author web site.
You can find how what readers are saying about Five Paths to Wealth by reading reviews at Good Reads.
Book cover design by Ashley Dameron