Many people believe that you need years of experience and a lot of knowledge to be a successful investor. While it is true that experience can help you to make the right decisions, there are some simple tips that can help you make good investments. Curious what these tips are? Read our information below to find out!
Choose Index Funds Over Mutual Funds
Low-cost index funds can be a better choice for beginners; this was also stated by experienced investor Warren Buffet. Despite many investment companies using mutual funds (actively managed funds) for many people, the majority of your investment will go to managers that will manage your stock. However, most managers don’t beat the index funds.
According to SPIVA (S&P Indices Versus Active), 91.91% of large-cap equity fund managers have under performed compared to index funds. There are also many benefits connected to using index funds; this includes but is not limited to: lower fees, better return than mutual funds, obsolete commission fees and tax efficiency.
Warren Buffet said,
“A low-cost index fund is the most sensible equity investment for the great majority of investors. My mentor, Ben Graham, took this position many years ago, and everything I have seen since convinces me of its truth.”
Reduce Your Expenses
Another simple tip to invest better is to reduce the amount you pay in fees and expenses. The average cost of investing with a mutual fund is approximately 3.17% per year, as declared by Forbes Magazine. 3.17% is quite high, so it is difficult for money managers to overcome this gap and perform better than index funds.
To reduce your expenses, index funds are usually the better choice. When you consider that approximately $7 trillion is put in mutual funds, but that the largest portion for that investments goes into expenses for managers and brokers, isn’t it better to reduce your expenses with an index fund instead and cut out the middlemen that take most of your investment?
Play the Long-Term Game
To get the most out of your investment, it is best to play the game long-term. Short-term investments are accompanied by a tremendous amount of risk, so it is safest to bet on long-term benefits such as compound interest and market changes over time. Additionally short-term transactions will result in higher taxes.
Investing all your money in the same investment is not smart, even if that investment seems relatively safe. Instead, you must be willing to diversify your investments and allocate your investments to different assets.
Even if you decide to invest in index funds alone, you still have the option to diversify.
Good examples of possible assets that could contribute to long-term success include a mix of:
- large-cap stocks
- small-caps stocks
- international investments
- emerging market stocks
- international bonds
- real estate
- other alternative investments.
By following the tips stated above, you can surely beat 90% of investors out there; this might seem like a tremendously high number, but you must consider that many people aren’t aware of the small return mutual funds give. While many people put their money in mutual funds, only the ones with their money in index funds are making the right decision.
While it is true that the market constantly changes and that each investment is accompanied by some risk, index funds are still the safest bet at the moment. To get the most benefit, it is often better not to use an agent, but something this is unavoidable if you have a lack of knowledge.