Book Review: The Little Book of Common Sense Investing
The Little Book of common sense investing examines the differences between investing in actively managed funds and passively managed funds. It examines why you should care and the impact that fees and taxes have on your money over the long term.
Book Summary Notes: The Little Book Of Common Sense Investing
- With all the options available out there how are you supposed to know where and how to invest?
- Evaluating stocks in the share market can be a rough business. You need a particular set of skills to begin with and even then no one can guarantee the outcome if your placing your money in individual companies.
- An alternative option is to invest in actively managed funds. In these you essentially give your money over to the fund manager, whose job it is to try and make you more money. The downsides to this is that often these managers charge quite high fees for these services and they get paid regardless of how well they actually do with your money.
- On top of management fees, these firms often incur brokerage fees from buying and selling. They also will often put your money into funds which also charge yearly fees.
- Over time it’s easy to see how these funds can yield a smaller return than the average of the share market for the same period of time. Usually the difference is quite simply the fees they charge.
- Very few actively managed funds manage to beat the return of the overall market in a given year. The danger also exists that just because a fund beat it in this particular year is no guarantee that it will continue to do so going forwards.
- Most people who invest through active funds aren’t fully aware of all the fees and implications of doing so. Don’t be one of those people. Learn about investing, spend some time and get familiar with the concepts and popular ideas in the field. No one will manage your money better than you at the end of the day.
- Index funds are simple, low cost and effective ways to maximise your returns and minimise the time needed to be spent managing your money.
- Because index funds track and hold large sections of the market, that means they come diversified straight out of the box!
- Index funds are passive funds so you don’t need to worry about the fees and taxes associated with high turn over inside of the fund.
- Index funds aren’t sexy, but they work. Don’t bother trying to find the next big thing that everyone will chase. Simply buy and own a large section of the economy and add to it over time.
