Passive Investing/ Class Discussion

The Evidence the Fund Management Industry Would Prefer You Not to See

• industry has more than 4 trillion pounds in its management
• only 2% of actively managed beat index funds for a sustain period of time
• most fund managers are simply gambling when they are investing your stocks
• 10 billion pounds in "dog funds" under performing their benchmark number for the past 3 years
• fund managers regularly under-perform
• has become harder to outperform index
• fund managers make around 10 billion pounds overall, whether or not they make their investors any money
• TER: total expense ratio
• excludes extra costs that can seriously erode your finances
• charges for fund managers in the UK have steadily raised over recent years
• Canada: charges 2.5% per year of everything you have invested
• US: charges 1.5%
• people are petitioning for the government to step in and create laws to lower these fund

Class Discussion Notes:

• elephantitis: if a fund does really well than many people will start investing in it, and that fund will have too much money to smartly invest
• that fund will have to be less picky about which stocks they invest in
• fund managers don't want to close the funds to stop elephantitis because they earn less money if they close 
• broker dealer: sale advisers, make money according to fees
• financial advisers: charge by the hour, don't make commissions on products
• short term government bonds are best
• short terms are unaffected by inflation
• first world government bonds are safer than infesting in companies
• couch potato: rebalancing 
• low cost
• diversified: safer

Further Research:

One of the most important decisions investors will ever make is their asset allocation—the percentage of stocks, bonds, cash and other asset classes in their portfolio. For example, a mix of 60% stocks and 40% bonds is common in a balanced portfolio.

The problem is that asset allocations don’t stay constant. As the markets move month by month, your portfolio’s stock-bond mix will change, sometimes dramatically. If you had a 60-40 portfolio in mid-2008, the stock portion fell to about 45% by March 2009. If you were at 60-40 when the market bottomed, then your mix would be close to 80% equities today.

That’s why investors should occasionally adjust their portfolio to get it back to its target. You can do this by adding new money to the underperforming asset classes, or by selling off some of the outperforming funds and using the proceeds to prop up the laggards. In either case, the idea is to “reset” your portfolio to its original asset allocation.

          

Finance Tracking:

     At the moment the most costly thing I am spending money on is taxi's.  This is because not only are they expensive but I use them too frequently.  After recording how much money I spend on taxi's I can confidently say that I would save substantial amounts of money if I either walked or took public transport.  I am able to cut down on food expenses because it is a lot cheaper to buy groceries and make the food myself or eat leftovers from dinner than it is to buy food from the school cafeteria.