Investors lost a lot of confidence during the last few years. They lost confidence in the honesty of corporate managers, in the objectivity of research analysts, in the fairness of IPO allocations, and in the integrity of mutual funds. But most of all, as the stock market plummeted and then began to recover, many people have lost confidence in their own ability to invest.
The financial industry hopes to benefit from this. Brokerage firms now emphasize the need for advice and ongoing financial management, and that typically involves an increase in fees.
The goal of this guide is to enable investors to take back their financial self-confidence. It proves that you can manage your own investments extremely well. That matters because:
- The impact of avoiding expensive and unnecessary advice is dramatic. The aim of investing is to generate net returns, and fees come directly out of net returns.
- You should feel competent and confident about your ability to manage your own finances, instead of feeling dependent on other people. After all, financial management - spending, saving, and investing - is an integral part of life.
A significant part of this guide is devoted to investing for the wealthy. The brokerage industry seems to suggest that investing is a complex, specialized, time-consuming activity, and since most people aren't up to it they should hire a broker or financial advisor if they can afford to do so. But there are three mistakes with this viewpoint:
- Brokers and financial advisors' interests are not always aligned with their clients', and the investments they select and the fees they charge can have a significant negative impact on a client's portfolio returns. If you're using a broker, you should read The 4 Criteria for Picking a Brokerage carefully.
- The cost of investment advice is often much higher than many people realize. The analysis here of asset-based fees and separate accounts should be read by every wealthy investor.
- Sound investing is not overly complex or time consuming. This guide translates widely accepted financial principles into straightforward, practical advice by showing that you can build and manage a diversified and sophisticated investment portfolio with ease. It outlines a clear framework for asset allocation, recommends which brokerage to use, suggests a portfolio, and shows you precisely how to rebalance the portfolio while minimizing taxes.
The approach to investing suggested in this guide, equally valuable for mainstream and wealthy investors, has been made possible by exchange-traded funds and the Internet (specifically online brokerages). Exchange-traded funds provide diversification and ease of management at remarkably low cost. The Internet cuts costs, removes intermediaries, and empowers the customer.
This guide brings the combination of exchange traded funds and the Internet to the individual investor. It's a broker's nightmare, because it shows individuals how to build and manage a sophisticated portfolio themselves, without requiring excessive time or expertise, while eliminating fees and in all likelihood significantly boosting returns.