So what is going to make or break you when it comes to your investments? Is it going to fees, simplicity, or strategy?
Well, Columnist Scott Burns builds his whole philosophy on simplicity and low fees. These are the two keys to his approach. His stance is that a low cost, passive approach is the only way to go when it comes to investing. The big point that he attempts to make is that professional money management is an expensive way to lose money. You should just do it yourself.
In a recent article, he is basically defending his investment portfolios that he has touted over the years. His low cost approach is apparently not immune to losses. The following were some of his remarks:
Since his approach is based on low cost index funds, “each fund has a high probability of doing better than 70 to 80% of its more expensive professionally managed competitors.”
Well, a big loss is a big loss. If a professionally managed fund goes down 30% and the low cost index fund goes down 24%, it really doesn’t matter. Investment strategies should be designed to avoid the big hits. In addition, it has been proven that index funds beat out the majority of managed mutual funds a portion of the time and not all of the time as this writer would have you believe.
“The greater the number of asset classes in your portfolio, the better the odds that one asset class will perform well enough to compensate for the asset class that is performing poorly.”
Well I do agree with that statement. However, I disagree with calling a REIT, a large company stock, and a small company stock three different investment classes. Depending on the market, they could all be considered one investment class because they are all three stocks. We are in that type of market.
The biggest concern that I have about this type of advice being given is that he is answering back to a retiree question about his portfolio method for investing.
Low fees are the way to go.
There is nothing wrong with fees. It comes down to what you get for those fees. If you are paying someone to manage your money and that investment manager is making you money this year, there is nothing wrong with fees. The question is not the amount of the fee. The question is if the fee is producing value? Sometimes you do get what you pay for!
Copyright © 2008 Prudent Money and Bob Brooks. All rights reserved.
