If you want to invest in stocks, you have three possibilities:
- Buying equities directly
- Investing passively
- Investing in a mutual fund managed by a fund manager
Buying equities directly
It could be a good option, but most of the people do not have enough free time and knowledge to research companies and follow their results. Picking few stocks at random, as many do, is a very risky strategy. If you do not trust any professional investor and pick many stocks in order to diversify and don’t buy and sell frequently, you can get acceptable long term results. However, remember that commissions and taxes will be high, especially when quantities are low so you should rather invest passively.
Investing passively
It means buying an index, for instance you could buy an ETF (a marketable security that tracks the performance of an index, with dividends included) of the S&P500 or any other major index. They invest directly in every company of the index, with very low commissions. It is a conservative strategy with acceptable long term results. As passive investing costs are lower than active investing costs (annual fees, performance fees and trading costs), the returns for a passive investor are going to be higher than the average returns for all active investors.
It is also possible to invest in mutual funds which invest in securities with some specific characteristics, for instance a low P/E ratio or a high dividend yield.
Investing in a mutual fund managed by a fund manager
A mutual fund is an investment vehicle which collects funds from many investors to invest it in securities, such as equities or bonds. To do so, you need to find investors with excellent long term track records to invest for you. In Vadevalor we are going to give you information about the few asset managers who are achieving good returns, exceeding index returns.
As you are going to see in our charts and documents, some investors have been able to obtain outstanding results for very long periods of time. Most of them are value investors, they have similar backgrounds and invest their own money in their mutual funds. If you trust someone to invest for you, I am sure you will feel more confident if you know that he is going to do as much as possible to keep your and his/her money safe.
