Friday, April 27, 2012

Taking a Hands Off Approach to Investing

Constantly monitoring investments can be challenging and depressing. When our investment goes down, we are discouraged. When it goes up, we feel good. But some recommend just letting the market go through its ups and downs and eventually corrections occur in your favor. Watching every rise and fall can lead us to "analysis paralysis" where we are over analyzing everything to death so we do nothing. Some mutual funds for instance are actively managed and some are passively managed. We pay more for those that are actively managed by professionals. Actively managed annuities and whole/variable/universal life insurance policies can often be poor choices for a portfolio due to high management fees that will eat into your return on investments. Many financial experts recommend buying a term life policy, then augmenting it with mutual funds, IRAs and/or a 401k. But, sometimes a basic index fund that mimics the performance of an index such as the S&P 500 can be a good choice. In 2011, investors would have done better with an index fund 84% of the time when compared to an actively managed fund. This statistic comes from this article by consumer advocate Clark Howard:

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