Thoughts

To Be Smart, Is Admitting That You Are Not That Smart.

Money

The stock market is a smart way to invest your money.

But, picking winners is tricky. For example, 96% of actively managed mutual funds fail to beat the market. To be clear, when we say beat the market, we mean a stock index. Be it S&P 500 Index in the USA or Top 100 Index in the UK.

But if you invested in a low-cost index fund, then the odds are more in your favour. Even Warren Buffett, a star picker of undervalued stocks, said when he passes away, the money in trust for his wife should be invested only in indexes so that it minimises her costs and maximises her upside.

Brokers take fees. Mutual funds take fees. Fees matter. Be smart, and spread the risk with a low-cost index-linked fund.

What the majority of people don’t realise is that an increase in 1% in fees will cost you 10 years in retirement income! (see diagram below).

So, find a low fee disruptor. One example I have come across to is Vanguard UK. There are plenty of them. Go find the best one for you. You need to get an independent financial advisor who doesn’t make money from selling you products but by giving you advice.

Three workmates at age 35 all have £100,000 to invest. Each selects a different mutual fund, and all three are lucky enough to have equal performance in the market of 8% annually.

At age 65, this is where they land. And suddenly, those small differences in their respective fees suddenly add up.

Same investment, same returns, and Joe has nearly twice as much money as his friend David!

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