Kevin Kautzmann, CFP® Quoted in MSN Money
Getting into the investing game for the first time can be intimidating. New investors might think they have to spend hundreds of hours learning about stocks and mutual funds, and constantly watch their portfolios to make sure they’re on track.
Hooey, many experts say.
“To think that by trading individual stocks you’re going to beat the stock market over a couple of decades is beyond ludicrous,” says Bill Schultheis, a principal of Soundmark Wealth Management and the author of “The Coffeehouse Investor,” both of which subscribe to the philosophy of creating and holding a diverse portfolio of mostly low-cost index funds to ensure growth and eventual wealth.
“In the past 20 years I have not spent more than 20 minutes total on my portfolio, and I’ve outperformed 95% of people,” Schultheis says. “That is because I never trade, and I stick with an investing philosophy that fits with my life.”
Too good to be true?
So how do you create your own couch-potato portfolio, one that works for you while you spend time doing the things you do best, like enjoying life?
Increasingly, investing experts advocate index-based exchange-traded funds, or ETFs. These are basically mutual funds but they are traded like stocks throughout the market day. And they follow benchmarks.
There are ETFs that follow the economies of individual countries, or broader economies such as South America’s or the developing world’s. There are also ETFs that follow stock exchanges, commodities or specific industries like health care or oil and gas. The value of an index fund that tracks Taiwan’s economy goes up and down with that country’s economy. Same with a fund that follows gold; as the price of gold goes up, so does the ETF.
Recently, a few “active” ETFs have been introduced. These are exchange-traded funds that are managed by investment professionals, and they come with higher expense ratios in return for promises of higher returns.
Index funds are similar except that they are bought from mutual fund companies and are purchased and priced just once a day, at the close of trading.