Get a financial education. Where do you start? Do you invest in stocks? How do you pick the right stock? Do you do the research? You are able to invest hours and hours into looking into companies? I constantly felt overwhelmed by the choices of stocks. I thought funds would be a good idea, more balanced, a bit more diverse, more stable, easier to research than individual companies. I invested into mutual funds that performed high the previous year, and shockingly, the performed below average the year I bought them. Then, by chance, I ran across the following book and absolutely loved it. It provided a completely new perspective on stocks and funds, it made a lot of sense and it seems to make investing very easy, more a place and forget thing:
"The Only Guide to a Winning Investment Strategy You'll Ever Need: The Way Smart Money Invests Today"
by Larry E. Swedroe
20 dollars that might save you thousands and make you much much more. Swedroe lays out, in a kind of evidence-based way, the "modern portfolio theory" and the "efficient market theory". The "efficient market theory" states that the stocks on present day markets are always efficiently priced, that there are no "hot secrets", no undervalued stocks that you can capitalize on. The reason is that thousands of full time analysts are constantly combing the market, examining and evaluating companies. It is close to impossible to beat the market by purchasing specific stocks. Stocks are priced right.
And, you cannot predict how the market will move in the future. Short term developments are literally random. You cannot know more than the market, especially in the long run.
The "modern portfolio theory" says that index funds perform better than individual stocks in the long run. Index funds are the best performers, better than any personally managed investement fund, better than "aggressive growth funds" in the long run. The index funds grow in the range of 9-11% on average, long term. Just for fun, check the performance of the Dow Jones against your personal performance. Did you beat it consistently over 15 years?
Why is trying to score with individual stocks in hopes of "beating the market" generally believed possible? The media and brokers make a very comfortable living using and spreading this misconception. Imagine if everybody just invested their money in index funds and let it grow - brokers and media types would have to look for new jobs...They have zero interest in telling you that index investing is better than what they offer...and cheaper.
Only rare, select managers beat the indexes over the long run, but chances of you personally investing their money with them are minimal. On the other hand, your chances of under-performing are vast. Index funds offer an investment vehicle that is incredibly and unbelievably easy. Almost no research required (after setting them up) and very rewarding. There are quit a few indexes, some of which are more heavily weighted to large stocks and others to smaller stocks. There also are international indexes. It seems important to maintain diversification among various asset classes, but the book explains that nicely. It also teaches how to build a portfolio.
It seems easier and better, why not check it out?
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