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How good are the investment experts? Logically, you
would think that stock picking “experts,” as mutual fund
managers claim to be, who spend all day analyzing
financial reports, interviewing company presidents and
CEO’s, talking with research analysts and working with
their research team, could pick enough companies and
avoid enough bad companies to outperform the stock
market, which is made up of all the good companies and
all the bad companies combined . (coffee pg 65)
Why a simple approach? Because it works --–
80 percent
of the actively managed funds fail to beat the stock market
average (index)---
25% of institutional investing is with
index funds. Many states allocate a large proportion of
their investing to index funds. Fees are much lower for
index funds ---
.20% vs. 1.50% for actively managed
funds. No loads ---
some funds will charge 5% when you
invest ---
$1,000 invested will be worth $950 at the end of
the first day of your investment..
(Research on the internet on institutional investing and
why index funds and look at books I have.)
But they can’t and they don’t. What does the research
show? Through the end of 2004, the S&P 500 Index
(passively managed mutual funds) consistently
outperformed 98% of mutual fund managers over the past
three years and 97% over the past 10 years.
Only 37 percent of all actively managed mutual funds
beat the stock market average during the last fifteen-year
period.
Only 33 percent of all….. during the last ten-year period.
Only 40 percent of all ---during the last three-year period.
Only 20 percent of all ….average in each of the last three,
ten and fifteen year periods.
Examine up to 10 –
12 lazy portfolios
Some of the largest and most sophisticate investors in our
country ----
the administrators of state pension funds
invest huge sums of their money in index funds. How
much? The state of Washington indexes 100% of their
stock market money in index funds. California indexes 85
percent. Kentucky ---
67 percent. Florida ---
60 percent.
New York ---
75 percent. Connecticut ---
84 percent. (pg
76 coffee)
5.
Make your investment decisions based on what is
probable, not what is possible. The brief bull market in
1999 showed us that returns of 75% were possible. But
the bear market of 2000 –
2003 showed us that 75%
losses were equally possible. We have three quarters of
a century (75 years) of history to show us what is
probable. This look at reality ---
and not the flash-in-the-
pan excitement of a bull market, should be the basis of
your planning. That way, you will have probability
working for you, not against you. -2-
6.
Determine the kinds of assets that will give you the
returns you will need to achieve your goals. The index
fund advantage
7.
Combine those assets in the right proportions into a
portfolio that is tailored specifically for you. (chap 12)
8.
Learn to recognize and control the expenses of
investing. (chap 11) Smart investors pay attention to
expenses. Sloppy investors don’t want to be bothered.
But, over a lifetime, the difference can add up to
thousands of dollars.
9.
Establish a distribution plan that will give you the
income you need in retirement along with the peace of
mind of knowing you won’t run out of money.
Withdraw money too fast and you could be in deep
trouble. (chap 13)
10.
Put everything you do on automatic pilot. Dollar cost
averaging, automatic investment plans that take money
out of your bank account on a regular basis or through
payroll deduction. Invest in index funds, which by
nature, automatically correct for unexpected disasters in
the market. Example: If a big company in the S&P 500
Index tanks, the index will automatically correct with no
action required from you ---
they will drop that company
and add a different one to the mix. Rebalance your
portfolio every year.
Most people would not leave on a two-week vacation
without a plan or a road map. However, too many will
move into a retirement that could last 20 –
30 years or
more without any plan on how they will get there.
(Check book web site ----
Ten Steps To Retirement (Merriman page xvi0)
1.
How long will you live?
2.
Establish a pattern of regular savings.
3.
Determine how much money you will need to live on in
retirement. How big your portfolio must be.
4.
Determine your personal tolerance for risk. Risk
exercise tests.
Find out how to utilize three simple principles of investing
Questions you will need answers to
1. How long will you live
2. How much money will you need each year
3. What will be your sources of income
4. What will they provide
5. How do you feel about risk
6. Three basic options for investing
4