Bad weather outside, rainy, dark, dismal—I’m thinking about economics. A retired friend asked about QE3, the acronym for Quantitive Easing 3—the Federal Reserve’s (Fed’s) newest effort to boost the economy. There have been two related efforts in the past few years, hence this new one is number 3. “I don’t understand it—is there anything in it for me?” he asked.
A great deal!—to answer the title question. Three examples will illustrate the loss associated with active investing, or, stated positively, the gain from passive investing. The examples build on last week when I showed that active and passive investing had to achieve the same average gross returns. Yet active investing costs more, so in the end, the net returns to retirees are smaller with active investing.
Active investing links retirees with financial planners, brokers and actively managed mutual funds. Active investors believe they can identify low-priced stocks to buy, or that they can predict which stocks will drop in price so they can sell. In addition to individual stocks and bonds, they often buy actively managed mutual funds where a fund manager does the buying and selling. Continue reading
Many retirees invest passively by buying shares in low-cost index funds that are designed to track selected markets. I have illustrated that approach in previous posts.
Many other retirees, and many younger investors, actively manage their investments. Some retirees do their own research and analyses while others hire brokers, financial planners or other advisers to manage their investments. They hope to achieve superior performance—to beat the market—by relying on extra effort, knowledge and skill. Continue reading
In midcareer, people need to get along at work, and in retirement people must get along with their investments. At work in middle life, and with investments in retirement, getting along includes people, but it also involves the circumstances, tasks, and procedures in each setting.
Retirees can manage their own investments as they managed their work, but to do so, they should grow familiar with their assets, understand asset allocation and rebalancing, and keep a steady discipline concerning withdrawals.
One good way to gain confidence with managing a retirement portfolio is to work through a model program year-by-year. Continue reading
Last week we added Real Estate Investment Trusts (REITs) to a retirement portfolio, and this week we add international investments. The completed portfolio will now have domestic stocks, domestic bonds, REITs, and international stocks. Just these four investments can carry a retiree a long way into efficient, reasonably stable returns.
Why international investments? Diversification and growth are the best answers. Fifty years ago the United States dominated the world of investment opportunities, but today many countries have growing economies, well-run innovative companies, and good opportunities for investing. Continue reading