DIY Investor Magazine
/
December 2015
39
Ever more people are taking charge of their financial
futures – to invest for their later years, exploit the new
pension freedoms, or simply to grow their wealth to
keep up with rising house prices, school fees, and the
like.
With cash interest rarely, or barely, beating inflation
that means investing in shares and bonds but trust in
financial services is low, with many treating professional
advisers with suspicion.
Taking a DIY approach can be a daunting prospect
for those new to investing but, happily, there is a
straightforward yet powerful strategy available –
passive investing with Exchange Traded Funds (ETFs).
ACTIVE MANAGERS DON’T BEAT THE MARKET
ETFs make investing simple, cheap, and effective, even
compared to more expensive and seemingly more
sophisticated options. It might feel counterintuitive, but
there’s a case against using professional active fund
managers to invest in the markets. Indeed, several
decades of academic research has shown the majority
of fund managers do not beat their benchmarks.
As a group, active managers failed to protect investors
in the 2008 stock market crash, and they’ve failed to
match the subsequent recovery.
Seeking to outperform the market was always futile,
because active managers are the market. If 50% of
Dominique Riedl,
founder and CEO of justETF, explains why he thinks ETFs are the right choice
for DIY investors and explains how his platform can assist in selecting the right products to build
& maintain a balanced investment portfolio.
actively invested money beats the market in one year,
then 50% must lose to make that possible; active
investing can therefore be a zero sum game.
The other issue is their high fees. At most 10-20% of
managers might beat the market long-term, yet 100%
charge higher fees. In that respect it is pointless paying
for a market-beating performance only to get a worse
than average result.
AN ALL-ETF PORTFOLIO – THE BEST SOLUTION
FOR MOST INVESTORS
This is where ETFs come in; because it’s so hard
to beat the market, it makes more sense not to try.
Instead, invest as cheaply as possible using index-
tracking funds that aim to secure the market return.
As well as shares, ETFs provide market-replicating
access to bonds, commodities, real estate and money
market funds. This means you can combine different
ETFs to create a multi-asset portfolio that mirrors a
sophisticated wealth management approach at a
fraction of the cost.
Trading and running costs are low, so your ETF portfolio
has the strong probability of outperforming expensive
and sophisticated offerings that aim to do more, cost
more, and ultimately fail their investors.
ETF PORTFOLIO INVESTING
MADE SIMPLE
BECAUSE IT’S SO HARD TO BEAT THE MARKET, IT
MAKES MORE SENSE NOT TO TRY. INSTEAD, INVEST
AS CHEAPLY AS POSSIBLE USING INDEX-TRACKING
FUNDS THAT AIM TO SECURE THE MARKET RETURN
