We covered how investing in index funds and going with the flow of the market can make you money.
Even if you never fly above the waves of the market. The whole economy grows over time, slowly but steadily. You can make money by investing in this growth so long as you can ride out the downs, and you have the time.
Okay, so it is very hard to choose only winners, but it is possible, right? Aren’t there smart people out there who like this kind of thing? Why not have them manage your portfolio, so you can fly above the waves, do even better than the market?
This might be a good way to go!
But… watch out, because those brains come with fees.
This means that actively managed funds, (investments where people do the thinking, buying and selling), MUST do better than the market to make you the same amount of money as an index fund. You would think, the worst that happens is that you do at least as well as the market.
But, if managed funds do no better than the market, the fees will pull down your profits, so you don’t see those gains.
The thing to remember is: Watch out for fees!
Make sure your managed accounts do well enough to pay you when you’re all done paying the stock traders.
See April 2nd, 2021 post for a refresher on index funds.