How to Win at the Money Game
The investment industry has done a brilliant job of convincing us that investment is difficult and requires unique (and expensive) expertise. The evidence does not support this view.
“We know that 88% of global equity funds over the last fifteen years did not beat their benchmark”
Sean Hagerty, MD of Vanguard Europe, speaking on Radio 4’s The Bottom Line.
This is a fact, not an opinion. Investors had only a slim chance of putting money into a fund that would produce a better return than linking it to an index and leaving it alone. Doing nothing. No ‘investment management’. No mystery… just plain old fashioned patience.
In his brilliant book ‘Monkey With a Pin’ Pete Comley recounts the experiment carried out by Expressen, a Swedish newspaper, which trained Ola the Chimp to throw real darts into the newspaper. They gave him $1,250 and a set of darts and pitted him against five professional traders for a month. Needless to say, Ola won the competition with four times the gains of the best pro.
The Chicago Sun-Times employed a monkey called Mr Monk who beat the market in all but one year from 2003-2008, as well as beating the expert stock picker Jim Cramer.
In 2010 Lusha, a Russian monkey, made her portfolio grow three times in value beating 94% of Russian professional fund managers.
If monkeys can do this, surely we can too…!
Investment managers do two things- they pick stocks and attempt to time the market. Most of them are very bad at both. The only thing they are all good at is charging fees. By the time you have paid their charges any return to you is significantly reduced.
So how do you win at the money game?
“We know that 88% of global equity funds over the last fifteen years did not beat their benchmark”
Sean Hagerty, MD of Vanguard Europe, speaking on Radio 4’s The Bottom Line.
This is a fact, not an opinion. Investors had only a slim chance of putting money into a fund that would produce a better return than linking it to an index and leaving it alone. Doing nothing. No ‘investment management’. No mystery… just plain old fashioned patience.
In his brilliant book ‘Monkey With a Pin’ Pete Comley recounts the experiment carried out by Expressen, a Swedish newspaper, which trained Ola the Chimp to throw real darts into the newspaper. They gave him $1,250 and a set of darts and pitted him against five professional traders for a month. Needless to say, Ola won the competition with four times the gains of the best pro.
The Chicago Sun-Times employed a monkey called Mr Monk who beat the market in all but one year from 2003-2008, as well as beating the expert stock picker Jim Cramer.
In 2010 Lusha, a Russian monkey, made her portfolio grow three times in value beating 94% of Russian professional fund managers.
If monkeys can do this, surely we can too…!
Investment managers do two things- they pick stocks and attempt to time the market. Most of them are very bad at both. The only thing they are all good at is charging fees. By the time you have paid their charges any return to you is significantly reduced.
So how do you win at the money game?
- Avoid investment managers and use index funds – there are many to choose from.
- Reduce ongoing charges to a minimum, no more than 0.5%pa.
- Pay a fixed fee rather than a percentage on platform and adviser charges
- Diversify your investments across a wide range of assets
- Leave them alone