The Current Investor’s Dilemma
We get it. Investing can be a daunting task. Until recently the average investor’s options have been extremely limited. Lets take a look at the current and standard options for investor Joe.
In traditional circles, investment options proposed by most Investment Advisors are typically limited to bonds, and treasuries or bank certificates. Otherwise investor Joe gets offered to place his funds with professional “stock pickers” (i.e. mutual funds, unit trusts etc…) who try their hardest to beat the market. Granted there are always opportunities for profit here, the proven reality is that unfortunately most of these funds actually fail to consistently beat the market.
What About Index Funds?
As a result of the above, many default to becoming “indexers” by investing in Index Funds. This investment approach at least acknowledges the difficulty in making money in the markets, and merely tries to match the market instead.
This is becoming extremely popular with the masses and there is of course some merit behind it. On a personal level, we view this as giving up altogether, and we are the type of people who prefer to explore alternatives before “settling” or following the herd (which is usually dangerous).
There are also some looming concerns arising, as cracks in the edifice of index investing are already beginning to show. This is especially true with the copious amounts of cash pouring in to index funds (the “masses” have now flooded this market). There are some concerns unfolding with this massive herd migration as the market becomes overvalued and significantly inflates index stocks over non-index stocks.
This often inflates already-hot market sectors and it makes the market overall less efficient (less honest) as no one is considering the fundamentals. While index averages are often nice to think about, the truth is that these averages are based on very volatile and lengthy periods of dramatic ups and downs. One needs to choose the proper indexes, time their participation wisely, and basically commit to these for life.
These risks becomes more evident as we are approaching new highs in a long-toothed bull market. Many of the world’s top financial analysts are predicting perilous times ahead in the world of “traditional” investing, and we know that the next severe bear market around the corner will certainly test new index investors’ pain thresholds – especially as we approach the point of Euphoria on the investor wave).
Alright, we know… it can all sound rather despairing, but the worst thing you can do is “opt out” entirely and let your money rot a way in a near-zero interest savings account.
It turns out there ARE some viable other options!