In the world of investing much advice is given about seeking low-cost mutual funds to gain investment success. But mutual funds - along with other types of investments - should be considered the tools of the trade. When buying handyman tools, you don't always go for the cheapest, but for a tool that gives value and will be reliable. It should be the same with the tools of investing.
While cost does need to be looked at, it should not be the prime factor in the investor's decision making. What is more important is proper asset allocation. Diversification is the key to success in investing. If the investor's portfolio is spread over a wide range of assets, then when one sector goes down the others will usually hold. There should not only be diversification over a wide range of assets, but also within those asset sections. And what's more, they should be professionally managed funds, not investments picked at random by the individual.
Another golden rule is aimed at the investor's behavior, i.e., do not base your decision making on either fear or greed. Investing in managed funds should be for the medium to long term, not the short term. If you pull out of your managed funds as soon as the market appears to be cooling off, it will cost you money. The stock market always goes up over the long-term, although there are downturns within this rise. It is only by staying in that you will eventually see the increase in wealth.
No comments:
Post a Comment