HOW INDEX TRACKING GETS YOU MORE FROM YOUR MONEY
Passive Index Tracker or Actively Managed Funds?
So, you’ve started to invest for the future.
Or maybe you haven’t and are trying to determine how to do it.
But how much do you really know about your options?
How do you know what asset class to start with?
How do you decide what to invest in and know what kind of fund is right for you?
Chances are you don’t.
Broadly speaking, there are two approaches to investing:
- Actively managed funds, where a portfolio manager or a fund management team moves your money around depending on their predictions of where best to invest; or
- Passively managed funds, also known as index tracking, where your money is invested in proportion to the companies listed in a specific index and is left to grow.
But which is best?
Research consistently shows us that less than 12% of actively managed funds ever beat the market in any given year and a significantly smaller percentage consistently beat the market.
That is a rather terrifying statistic because it means the supposed experts are losing your money!
WARNING! - The financial advisor and the actively managed funds they put your money in will lose you money - and make them money!
It’s not surprising that actively managed funds underperform the market. Without some kind of crystal ball or psychic ability, it’s impossible to predict exactly what’s going to happen in the future – even if actively-managed fund houses like to pretend they do know!
In addition to the underperformance, actively managed funds come with higher costs.
All those “experts” need high salaries, bonuses, dapper suits, fancy cars and incentive trips all paid for with your money invested into the funds they manage.
Money earned by people who are trying to look after their financial future and who are entrusting the supposed experts with their dreams and hopes.
Money that now never gets to work for you because it’s been used up to pay for someone else’s fancy lifestyle.
These costs further reduce your real return, and active management starts to look even more unattractive.
If this doesn’t shake you up….
Say you have $10,000 to invest.
You are nervous and you have believed the BS that investing is complicated and scary.
You hand the money over to a Financial Advisor who invests your $10,000 in an actively managed fund with a 2% Ongoing Charge / Total Expense Ratio (these are the costs taken off to pay for those fancy suits and holidays) and the FA charges a small (joke) 1% fee.
Based on an average market return - nothing fancy or complicated - over 20 years - you will end up with around $42,800!
If on the other hand you take back your power- learn how simple, safe and lest I say saxe simple index tracking investing is - and invest this $10,000 directly in a simple portfolio of Index trackers with Ongoing Charges / Total Expense Ratios of less than 0.5% and you cut out the FA completely - yes - Fire that FA!
That same $10,000, invested in the same market, with the same return but without the burden of all those charges and fee - will grow to over $170,000!
WHAT!
YES - You will get $120,000 from your money. Call me weird, but I’d rather have that $120,000 in my pocket! Wouldn’t you?
This is why I love Index trackers. They give me 70% more from my investments than if I had continued to ignorantly “trust” the experts and why they make up 70% of my wealth generating net worth.
But don’t just take my word for it - have a look at the comparison below to see just how active management and index tracking compare.
|
Index Tracker Fund |
Actively Managed Fund |
|
|
Goal |
To track the performance of an index as closely as possible |
Try to outperform the index or a specific benchmark of their peers |
|
Strategy |
Buy the shares of the companies in the index |
Use research, market forecasting, a crystal ball and a portfolio manager or fund management team to predict which companies and shares might perform the best |
|
Tax |
Index funds tend to be more tax efficient as there are typically fewer trades within the fund |
Tend to have even more costs due to more frequent trades within the fund also attracting more tax. This is called churning. |
|
Expenses |
Typically lower ongoing charges and fees because less management required |
Typically higher fees because of more expensive management costs. Cost on average 2% more than their passive counterparts |
|
Transparency |
Total visibility of what the fund is invested in and the costs |
Often very difficult to see what the fund is actually invested in and fees hidden. |
|
Performance |
Most reliable over the long-term |
Less predictable over the long term |
|
How they compare to the Index |
Mirrors return of index it tracks |
Less than 12% of actively managed funds beat the market |
When you put in place a regular investment plan, investing into a simple portfolio of index trackers you are setting yourself up for investment success.
Better still, you are doing your wealth building in the way it should be done – in the way that allows you to live your life fully while you grow your assets.
Investing in index funds minimises the time and energy spent on researching funds and managing the portfolio, which frees you up to go and live your life which is the whole point!
If you’re looking to get your money working for you and you understand that investments are the only thing that will give you financial freedom - then index tracking is the way to go.
But that doesn’t mean that all index trackers are equal. Remember that the kind of fund you invest in is only one element to consider.
For the best results you need to use a diversified portfolio approach with different asset classes included so you maximise your gains and minimise your risks.
Ready to learn how to benefit from index tracking?
Join me for a FREE Index Tracker Investing Masterclass and get your money working for you.
>>> Click here for details <<<
