I am not a big fan of funds and I will explain why :
1: THE COST OF FUNDS
The simple reasoning is this one: the total universe of all funds performs like the market performs, because the funds drive the market. But funds require compensation for the ones that manage them, so the total universe of funds is less performant than the market itself. You can compare it with buying directly from the manufacturer, or through a shop. There is the luxurious feeling of someone taking care of you, but it's not for free. There are start fees, exit fees, management fees, and compounded over many many years, this really eats away the profits.
2 THE RISK OF FUNDS
Funds should spread risk over many companies, reducing your risk, but in reality, funds still have big inherent risks: they are managed by fund managers, so you totally depend on the skills of these people. It happened quite a lot of times that funds (especially growth funds) lose a big portion of their value compared to the market. On the other side, some funds outperform the market now and then. Still, in the long run (15, 20 years), the market always wins because of their inherend costs.
To summarize, I even hate funds: they manage money for people like you and me and get payd way too much without a risk of their own, and are generally LESS performant than the market itself. So why do people use them ? Most people feel comfortable when somebody else is in charge of things that seem difficult. But most of the ones that are in charge are incompetent. Sure, in history, there were quite a few brilliant fund managers. But unless you are sure your fund manager is brilliant (he will do his best to convince you ofcourse) you are better off with this solution :
As an investment strategy for retirement, I really encourage you to think about this simple strategy:
If you want to emilinate the inherent costs of a fund that eats away your profit in the long run, but you don't want the risk of picking shares yourself, the solution is to buy index funds. They are baskets of stocks that are used to calculate the different indexes like the the Dow Jones industrial, Nasdaq COMPX, the Smallcap Index and many more. You can buy these without paying a premium, without management costs. Over time, you will outperform everybody else. Sure, you will look sad if somebody tells you they are in a fund that earned them 20% last year, but over many years, you will gain more.
Next, to eliminate the current problem of the high priced market, you simply invest the same amount of money each month in these funds. You will cut through bear and bull markets without any worries. The other advantage is that you can gradually shift to less risk over the years, as more and more money pours into index funds.
It is a solid plan with zero risk, the kind of plan you need for retirement.
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