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Green Stocks |
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Rule #1 - Do not lose money! Rule #2 - Never forget rule number 1! ( by: Warren Buffet )For comments or questions please email: : admin@equityresearch.com |
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Index FundsWarren Buffet said it best, “ I would never invest in mutual funds, but if I did it would be a low cost index fund.” What is so attractive about index funds?The best reason is that index funds consistently beat 80% of all the funds out there. The reason is that the market is efficient. Harvard M.B.A. Geniuses still can't seem to beat a good index fund. For one reason fund managers are at a big disadvantage in their cost structure. Index funds buy and hold the stocks in the index. They don't have a lot of trading fees, marketing fees, or need analysts to pick stocks like other funds do. Index funds allow you to join the market for the lowest cost possible. Vanguard, discount brokerage, is known for having the lowest fees in the industry and built their company on this very concept. Many people like a good S&P 500 index fund. Index funds don't get a lot of fanfare. The best ones try hard to keep costs very low. That's why people always market the more expensive funds to you in an aggressive way. Expensive funds make money for the company marketing it regardless of returns. How hard is it to be in the top 20% of funds?It is extremely difficult. Most funds that are top simply drop in and out from year to year while the index funds consistently perform near the top. What most companies do is start a lot of funds. The company doesn't know which funds will make it to the top. When a fund has a good year, they will then advertise the return like crazy. The sad thing is that the fund is most likely going to go down the next year because it was just lucky to have that one or two good years. There are always exceptions like Fidelity Magellan fund back in the 70s and 80s. The hard part is that as funds get larger the performance will drop because it is so hard to manage large volumes of money efficiently. That brings you to square one in trying to find the best fund that is still small and that is probably not that well known. In most average peoples realms of probability, they won't pick the right fund. That is why Warren Buffet recommends the index funds for average investors.
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