1	Retirement Planning Consultants Confused, overwhelmed, disappointed with the investment process and don’t know where to begin? As you may have discovered, investing isn’t all that fun for the average investor. What options do you have? You can do it on your own. But, how good are you on picking from tens of thousands of stocks, bonds and mutual funds that are available? One financial writer calculated that if you stay up on the news in the press, magazines, online and cable, you'll be exposed to at least 42,000 "tips" every year from pundits and ads. How do you sift through all of that confusing information? What do you --- the average investor, need to know about saving - investing for retirement? There are no investment gurus. A magic formula that will help you to build your nest egg does not exist. History shows us that the experts that you see on TV or read about in print cannot produce above-average returns on a regular basis. But, they will charge high fees and expenses that will under perform a totally unmanaged index mutual fund – a fund that charges low expenses and just buys and holds all or a representative sample of all of the stocks in a broad stock market index. More than a hundred years of academic research has concluded that index funds are an investors best investment. Why? Studies have repeatedly shown that over the long haul, index funds perform better than thousands of other competing mutual fund. Index funds have regularly produced rates of return exceeding those of active managers by close to 2 percentage points. The reason? Management fees and trading costs. They are cost efficient. Funds that mimic indexes always have lower fees and expenses because of their passive investment style. You don’t have to pay high priced managers of actively managed funds to pick stocks for the fund. The expense ratio of the average index fund is below 0.2%. The expense ratio for an actively managed fund is 1.52%. Research on mutual fund performance shows that paying above average expenses makes above-average performance less likely. Expenses don’t enhance performance. They erode it. Every $1 dollar you pay or lose now costs you not only that $1 but also the amount that $1 could earn over your lifetime. Why use index funds? Returns from index funds are predictable. They do not prevent losses when the market declines but you know beyond doubt that you will earn the rate of return provided by the stock market. With index funds, you capture the entire return of each asset class. By using index funds, you use a simple, time-tested, low-cost, easy-to-understand, do-it-yourself, low-stress, uncomplicated approach to building your nest egg. Your – low maintenance portfolio does not require worrying about your investments on a day-to-day basis. The S&P 500 Index outperformed almost two-thirds of large-cap active funds in the five years through 2005. The S&P Mid-cap 400 index bested 81% of mid-cap managers and the S&P SmallCap 600 topped 72% of small-cap manaagers. What’s the difference? Actively Managed Funds or Passive Index Funds? In an actively managed fund, the manager will try to pick individual securities (stocks and bonds) that will perform better than the market. However, beating the market is due to luck not a skill that is repeatable. Studies show that only about 3 percent of active managers beat an appropriate index over a ten year or longer period. It is nearly impossible to predict which manager will get lucky and beat the market. Investors who have been lucky in the past should not expect a continuation of their good fortune in the future. Passively managed index funds do not attempt to beat the market. They will seek to match the returns of a specific stock benchmark or index by buying representative amounts of each security in the index In a 2004 report on investment behavior, Dalbar Inc, a financial-services research firm, found that over a 20 year period, the average equity investor earned 2.57% annually , compared to 3.14% inflation and the S&P 500 index investor earned 12.22% over that same period. The gap between the average active investor and the market is 9.65% a year.
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