The investment strategy that beats the average investor – II

In Part I of this two-part post, I made the case for low cost passive indexing as an effective means of long-term wealth building. So much so that even Buffett has recommended it to his heirs in his 2013 letter to shareholders: “My advice to the trustee couldn’t be more simple: Put 10% of the cash in short-term government bonds and 90% in a very low-cost S&P 500 index fund. (I suggest Vanguard’s.) I believe the trust’s long-term results from this policy will be superior to those attained by most investors – whether pension funds, institutions, or individuals – who

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The trouble with mutual funds

At a glance Equity mutual funds offer a convenient avenue to get professional management of your money to be deployed into stocks Diversification by exposure to a large number of companies and liquidity are also key advantages of mutual funds But the inherent disadvantages are expenses and investor behaviour in lock-step leading to large scale purchases and redemptions For the investor, the huge number of fund options offer a problem not unlike having to pick the right stocks In addition, the past variability in fund performance and unlikelihood of superior performance staying that way make choices difficult Exchange-Traded Funds (ETFs)

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