Good Return with No Effort
Most people don’t want to put any effort into finances, but they want to see results. The bad news is: if you don’t apply yourself and you want to beat the market, you are probably going to lose. The good news is that with no effort, you can get very close to market returns using index funds and exchange traded funds (ETF).
It surprises how ordinary people think they can beat the market by following hot stocks, industries, or managers. But, the truth is, you have to put in a minimum of research to get market-beating returns (see High Returns With Little Effort).
For most people, this effort is just too boring. So, for all of you that don’t want to read annual reports and don’t want to learn the basics of valuation, do yourself a favor and don’t try to beat the market. If you bought tech stocks in the 90s and are currently buying real estate and energy stocks, if you have many different sector mutual funds, or if you have no idea what you are currently invested in, you have a problem.
The easiest way to solve this problem is to put your investments on autopilot. Using a simple strategy of buying and holding an index mutual fund or — even better — an ETF can give you close to market matching returns. They offer a market return less fund expenses — and the lower the expenses, the higher the return.
In fact, according to a recent Morningstar study, the fund expense ratio is the one piece of information that is predictive of future returns. Index funds and ETFs have lower fees than actively managed funds and so should have higher returns in the future.
If you do not want to do your own basic research, you should not take hot stock tips or speculate on hot managers or sectors; you should find a boring index EFT or mutual fund.
P.S. If you need help finding an ETF or mutual fund, you can start by checking out these ETFs: vti, ivv, spy; or these mutual funds: vfinx, fsmkx, fsemx, fsiix, fstmx, or fusex.
