We normally invest in an Active way or a Passive way. One of the most claims of Active investor is “I know more than the market.’ Passive investors simply take exposure to market via Indexing. They believe that market is usually right. Building a good portfolio is just not enough. You need to manage it properly and take the return. So, either you do this consistently on your own or ask some expert.
Investing in Stocks requires time and effort. Investing in Mutual funds will make you feel like you have lost control over it as you have no control over the fund or fund manager.
It is difficult for an individual to outperform the market consistently over the medium to long term. None can consistently predict the direction of the market.
Surgeon and Pilots are skilled.
Managers or Stock Pickers are also skilled,
Why doesn’t it repeat?
In order to invest sensibly we have to bring down Non Systematic Risk.
“Most Investors, both institutional and individual, will find the best way to own common stocks is through an index fund that charges minimal fees. Those following this path are sure to beat the net results (after fees & expenses) delivered by the great majority of investment professionals.” – Warren Buffet
It is more profitable to invest directly in an Index. Index funds allow you to invest in the index. Such funds invest their portfolios only in the stocks that contain a particular index. Performance of such funds will be same as the performance of the index. You have array of Index funds available from Mutual fund sector. Mutual fund sector offers you funds that not only mirror an index but whose units can be traded on the stock exchange in much the same way as common stocks. These funds are called Exchange Traded Fund’s or ETFs.
Benchmark Asset Management Company in December 2001 launched
ETFs are perfect medium to execute strategic asset allocation for long term portfolios.
