In a world of ever increasing complexity keeping a simple investment strategy is paramount.
I hear of new investment opportunities every day – from biotech to blockchain to cryptocurrencies to overseas property – the list goes on and on.
It’s very easy to get caught up in these confusing and sometimes risky new ventures – often with the mistaken notion that you don’t want to miss out or get ‘left behind’.
I keep a sceptical view of these ‘once in a lifetime’ opportunities and adhere to one crucial rule – stick to what I know. I learnt this valuable lesson from reading the great Warren Buffett’s book – who only invests in things he understands. And they don’t come much better or more sophisticated than Warren Buffett in the investment world.
Less is more
It’s easy to fall into the trap of trying to beat the system and over think things. So keeping investing simple for me is about letting the market do its thing – not trying to outsmart it. Simplifying is understanding that we can’t control the market and focusing on things we can control like fees.
Which brings me onto the cost of ‘Active’ investing. I have touched in this in the past but I read an interesting article in the Sunday Times recently that reinforced the view that Active fund managers are poor value and they even have a ‘cartel mentality’ – resisting the pressure to lower their charges. Active investing is when a fund manager attempts to pick and choose the best stocks – obviously this takes time and consequently costs more to manage.
However, Passive or Tracker funds (which simply follow an index) have much lower costs and more often than not outperform Active funds.
So why is this important to you and your pension? Administration charges, costs, fees, commission – whatever your provider calls them are the single biggest factor in determining how your retirement saving grow. The more they take out in charges the slower it grows. It’s that simple.
My aim was to make this article simple to follow – I hope you found it so!