Hello Riters, its been a long time out there, getting ready for Winter in Northern Hemisphere?
Today lets discuss why Invest in Index ETF and why avoid Mutual fund, lets dive in.
- In long Market always rise, thats not me saying, the likes of legendary investor Warren Buffet himself believe so. So, lets say if market always rise what is the best way to be on winning side?, of course buy into overall market low cost index fund like VTI
- On average 90% of actively managed mutual funds have underperformed benchmark indexes over a preceding 15 years period.
- If your Mutual fund have 2% of fees (expense ratio, portfolio fees, handling charges and other hidden fees), than that can eat 61% of your portfolio growth in long run. Shocked? No?, let me explain, suppose you have invested $10,000 and kept it for 50 years in Stock market just assuming a return of 7% (ideally returns are above 9%), your portfolio will grow to a lump sum of $294,600 by end of 50 years, now if it was a Mutual Fund with charges of 2%, then you only avail benefit of 5% CAGR, leaving your portfolio to grow to $114,700 (61% lesser or 39% of $294,600 market returns) read more here.
- Still not convinced? Lets say recession hits you in that case your portfolio will likely decrease in value but at the same time you will be charged the fees (the so called Active fund managers will still win this game).
- Expense ratio of Index fund is very low and there is no hidden charges, for example – VTI has an expense ratio of around 0.03% and If you are in India checkout ICICINIFTY with expense ratio of just 0.05% (let me know if you find something better in comments below, the likes of VTI is missing in Indian market)
Don’t take my words for it, always do your due diligence before investing. If you want to read more grab your copy of ‘Common Sense Investing’ the book by the founder of Vanguard Group.
Bonus Content – what to do in current stock market scenario? (for retail investors)
- Stay Invested, don’t sell value stocks so as to be able to avail the benefit of further highs
- Sell the stocks that lacks value & strong fundamentals and are up just in the Bull due to investor sentiment.
- Don’t invest a lump sum new investment amount, as the market is still prone to volatility due to Covid.
- Remember you have to buy in dips, sell in highs.
Don’t let them take your hard earned money, get control of your money now! Be Financially aware, be financial literate.
Have a great weekend, happy investing! Happy Holidays… Stay Invested, stay safe, stay positive.