The Power of Index Investing
Why are 80% to 85% of all investors wrong? Could it be the power of advertising and greed? What do I mean when I say a high percentage of investors have it all wrong? Simple! The majority of investors build their portfolios by selecting individual stocks. While we do not find fault with investors who want to add a few highly selected companies to their portfolio, we think it is a loser’s game to build an entire portfolio using individual stocks. Avoid the mistakes of stock picking and use index vehicles as recommended here at ITA Wealth Management.
Why is indexing so effective? Here are a few reasons.
- Costs are kept to a minimum and this works right to the bottom line.
- Money managers and advisors are not required. The small investor can build their own portfolio without the added expense of an advisor. This saves additional money so more dollars are working for the index investor.
- Index funds, particularly ETFs, are tax efficient.
- One can diversify all over the world, a skill that escapes the small and professional investor. No one that I know is skilled in investing in all markets.
- Portfolio diversification is much easier if one uses index investments. The power of diversification cannot be over-emphasized.
- One does not need to worry about picking the right money manager.
- Research is on your side. Stock picking is a loser’s game and index investing is a winner’s game. Here is the link to one book I highly recommend.
Start out on the right foot of investing and construct your portfolio using index mutual funds or ETF index funds.