My toddler son spends long stretches every day hitting a foam golf ball around the yard; occasionally we visit a local pitch-putt course where he brings just his putter and his driver clubs. This simplistic approach to the game has drawbacks, of course, and in that way parallels a popular investment vehicle: the target date mutual fund.
The psychological urge to move on is ingrained in the American character. As investors, this compulsion does us no favors when the stock market is hot and we chase the top performers, or when it’s plunging and we flee longstanding holdings.
Fortunes change for mutual funds, even the best ones. That’s true for funds that seem to be alike. Subtle differences, however, can spell a noteworthy divergence in performance. A case in point is the contrast between good funds from Dimensional Fund Advisors and Vanguard Investments.
Do you collect mutual funds? Unlike hobbyists who collect stamps, art or rare coins, investors who own a multitude of funds are not better off.
Your mutual fund managers and their strategies are not to blame for your mediocre return. People trail their own funds because of performance chasing - the biggest mistake investors and advisors make.
Rebalancing is the process of buying and selling assets to move your portfolio in alignment with its original target allocation. Restoring your mix can both boost returns and lower volatility, but most investors do not understand how.
How are your holdings doing? To know for sure, do more than compare what you paid for a stock originally and its current value. Also examine how much you pay to keep your investments growing and how that growth matches your long-term money needs.
Reducing your investment fees is the surest way to improve returns. Index funds are cheap, but their prices do vary. Doing your due diligence and comparison shopping pays off.
Environmental and social issues loom larger in our lives. If you’re like many people, you alter your consumer decisions to do some good in the world. You can do the same when investing.
The philosophy called socially responsible investing claims that your investments should reflect your values. The most common implementation of SRI is to refuse to invest in certain companies because you disagree with one or all of their practices.