Her Magazine is New Zealand’s only women’s business lifestyle magazine! Her Magazine highlights the achievements of successful and rising New Zealand businesswomen. Her Magazine encourages a healthy work/life balance.
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THERE ARE FOUR WAYS TO INVEST IN SHARES 1. Direct Buying individual shares is known as direct investing. This is usually approached in two ways: serious investors who have the time and effort to study the market and think they can pick stocks successfully, and hobby investors such as share clubs and individuals who like to have a wee dabble. However, Dalbar research from the USA shows that; - DIY investors in the US from 1998 to 2008 made 3.9% pa - the S&P 500 index over the same period made 9% pa Yes, stock picking is a difficult game. 2. Active Managers and Stock Brokers (they choose and manage the shares for you) Study after study indicates that they cannot successfully and consistently forecast or pick the right stocks year in and year out, yet overall costs will typically be 2% to as high as to 3.5% p.a. A recent study in the USA found that only 32 out of 950 active managers managed to outperform the index over a five year period. "The only value of stock forecasters is to make fortune-tellers look good." - Legendary investor Warren Buffet. "Only 4% of active funds beat the index by a scant margin of 0.6 percent p.a., while 96% of active funds fall short of the index by an average of 4.8% p.a." - David Swensen, Chief Investment Officer, Yale University Endowment Fund. 3. Index Funds (passive) You can invest in index funds and there are literally dozens of them all around the world. They buy all the shares in the market, and since they are not forecasting or stock picking, they do not need highly paid analysts, and therefore have very low management expense ratios (MER's) and costs. Index funds are well liked; e.g. If you held the S&P 500 index fund from 1998 to 2008, you got 9% p.a. That's pretty good. Billions of dollars are invested in index funds all around the world. 4. Asset Class Investing - an enhanced method of index investing I spent 14 years working with active fund managers and share brokers who stock pick and forecast, only to be disappointed again and again with the results. Eventually, I tripped over DFA and asset class investing (which is a sophisticated form of index investing) proven by decades of rigorous academic research and the science of investing. One of the founders is Eugene Fama, a Professor of 30 years from Chicago University, who won the inaugural Onassis prize for services to global finance in 2009. He doesn't forecast or stock pick either, but he has co-designed an investment method that works better than most – the DFA funds. Asset class investing takes the good parts of index fund investing, still at low cost, and improves on it - sophisticated yet beautifully simple. "OUT OF INTENSE COMPLEXITIES, INTENSE SIMPLICITIES EMERGE." Winston Churchill KEY STEPS • Invest into a diversified portfolio of bonds and shares. • Not much property since most Kiwis have most of their money in property already. • The proportions of bonds to shares should be in keeping with your risk profile. - Conservative - two thirds in bonds and one third in shares - Balanced – half in bonds and half in shares - Adventurous - one third in bonds and two thirds in shares • Invest in the right type of share fund – use DFA asset class funds for your serious money. • Average in - buy some now and some later. • Rebalance regularly. • Be disciplined – for the most part buy and hold. • Give it time - patience is needed. Alan Clarke www.investandretire.co.nz Alan is an authorised financial adviser (AFA) and his disclosure statement is available on request and free of charge. www.h e rmagaz in e .co.n z | 53