Indexing -The Expert Approved Way to Beat 95% of the Active Managers
Are you an average investors? Or are you an individual investors? Have you ever feels frustrated when the active managers failed to beat the market using your money? I mean they used your money play the market game while you are the one who suffer in the end. So why should we trust them? Well no more, because the most of the expert investment advisor and even the legendary American Investor had approved that indexing is the best way to beat the active investor.
In addition, to practice indexing, we have to buy the common stock through a low cost index funds. Also, here is what Warren Buffet had written about on index funds on his 1996 Shareholder Letter.
“Most institutional and individual investor will find the best way to own common stock is through an index fund that charge minimum fees. Those following this path are sure to beat the net results (after fees and expenses) delivered by the great majority of investment professional.”
The investment professional would be the active managers who try to beat the market. Moreover, according to Index Funds: The 12-Step Recovery Program for Active Investors, numerous studies had been made with the same conclusion that index funds are the best way to achieve investor’s goals. Since each investor holds their own kind of risk capacity in their portfolios, the best strategies and the most efficient is to invest and hold a portfolios compromised of global diversified index funds.
What is index funds?
Yes, before we invest in it, we have to make sure we know exactly what the hell in index funds. The answer would be index funds is an index that tracks a broad market index or a part of the market. Meaning that, the index are mimicking and replicate the market’s performance and earns the market profits the same beating the market does.
They also known as tracker fund as they track the index funds management. Other than that, investing in index funds means you are a passive investor. And not to forget, with passive investing, you have a chance to beat at least 95% of the active managers that tries to beat the market and failed almost every years. The example of broad indexes are the S&P 500.
The benefits of indexing:
1. No worry about the ups and downs of the markets.
This is because indexing the market give an investor the ability to relax while investing. Because they understand that invest in a low cost index funds is targeting for a long time and if the market declines, they know that using market timing or stock picking only would put them a lot more trouble than they already have.
They understand each risk and and evaluate it based on the asset allocations. The best way to invest in a low cost index funds would be Dimensional Funds Advisors, as they provided the world best low cost index funds. Furthermore, if you are looking for an index funds advisor, you can try out the Index fund Advisors.
They had been know worldwide to maintain integrity and put the clients interest as the top priority. The also had a modern portfolio that you can check online when you using their services. Also, the helps individual investors providing risk capacity assessment to all their clients. A great service indeed.
2. Indexing is at low cost and no hidden fees.
This is the huge different between active investing and indexing. The reason is usually, active investing have a very huge fees that we have to pay to the management, active managers, brokers and so on. Slowly and within years, your money will be investment deducted and sometimes investors did not even see it coming. As they were hidden fees.
Not to forget, they performance would be worst than passive investing. Then why we should pay more? Remember past performance does not guarantee future results.
3. Their performance of beating the active managers proven all the time.
Why? Simple. Because it is a reliable investment performance and not an impossible one. As we all know, the market moves randomly and no one can know whether it will move up or down. However, the active managers still think that they can beat the market for you for a very high fees. And they keep on losing in the long run. How sad.
To put it simple, they can’t beat the market. Don’t believe in them. If you don’t trust me, trust Warren Buffet as he had made a 1 millions bet against a hedge funds to beat the s&P500 index funds in a 10 years period and currently his winning it. Also, the bet ends this year and only a market crash can make Warren Buffet lose this bet. Although, 1 million bet in nothing for Warren Buffet compare to his net worth. We should learned that even the Warren Buffet encourage us to invest in the index funds.
Since you are holding a diversified portfolios of a global index funds, you should consider rebalancing it once twice a year. It is one of the most important thing to do to achieve long term investing goals. this is because, over the months, your asset allocation will differs as the market moves overtimes.
So rebalancing your portfolio is to ensure that your asset allocation is depending on your risk capacity. For instance, sometime before rebalancing, you would notice that you stock allocation value had risen above of the allocation that you had set up. Let say, your stock’s allocation is 60% but now it had become 67%.
Therefore, you should consider selling some stock and buying the other asset allocation to make it back according to your risk capacity. Additionally, the shift in asset allocation should be expected by every investors, as market changes and grow at different rates.
The above benefits provided, are as a proved to show index funds are much more better compare to active investing. Also, to state clearly, why indexing is the best strategy for an investor to retire with peace of mind. Bottom line is now you can invest and enjoy your life without worrying about the market ups and down.
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