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
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.
Hello Riters, Hope you are doing great. We are back to help you do the personal finance. Today lets take you through some don’ts of a Investor. Lets discuss 7 ways to lose money in stock market and how to avoid them.
Buy at Bull and Sell at Bear – Yes, you got it. Now get a Beer & chill. Hold on, its not weekend, never mind. Buying at Bull Market (all time high) and selling at Bear (all time low) can cause you to lose money, a lot at times. But how do you avoid that, don’t be emotional and be patient. Hold on to your investment when market is low, and sell when its high. As Warren Buffet once said, “Be fearful when others are greedy, and greedy when others are fearful.”
Prediction – Can you predict the next Market Crash? Actually, No one can! No one can time the Market. Instead if calculated in a right way, investing early and consistently without worrying about crash, a bear or a bull can give far more returns than trying to time the market and missing out on those occasion or holding on to your cash for that perfect time.
Listen to Random guy – I mean avoid listening to a random guy on Youtube or a close friend. Do your own due diligence, don’t just buy that hot stock just because Minky told you to do so! Avoid looking for confirmation on Youtube.
Hope for a Miracle – Hoping for a miracle, chasing that next multibagger ain’t gonna do the trick. There is no guarantee you are ever gonna find a multibagger more so if you are after a penny stock. Instead invest in companies that are fundamentally strong!
Greed – Getting greedy, fearing that you will be left behind, speculating, always looking for the next big thing, or impatiently dumping all your money on Get Rich Quick Scheme.
Fees – Overlooking those hefty fees that are hidden under the blanket of complex finance terminology, and blindly investing in that mutual fund can gradually be a big hole in your pocket. For example – If you own a mutual fund with an expense ratio of 1%, you will be losing $1000 per year on $100,000 invested in the mutual fund, by just holding on to that investment.
Others – Poor monetary & fiscal policy, Geo political instability, currency devaluation are some other factors that can affect the Stock Market valuation.
As Benjamin Graham, once said, “In the short run, the market is like a voting machine. But in the long run, the market is like a weighing machine.”