On paper, it is no contest. Private investors shouldnt have a prayer of beating highly paid investment professionals such as fund managers.
Its rather like showing up at Stamford Bridge in your boots and expecting to give Jose Mourinhos boys a run for their money.
Fund managers certainly have all the advantages. They have the brains (mostly). They have the back-up, with teams of staff and fancy data analysis. And they have the weaponry, with the ability to wield complex instruments such as derivatives and default swaps.
Up against them is little old you, with your laptopand broadband connection. How can you begin to compete?
It is a daunting task, but you have plentyin your favour.
Time Is On Your Side
Fund managers are under constantpressure. They have to report every quarter, half-year and of course annually. If performance slips they will soon find it harder to attract new investors, and existing ones will soon abandon them.
This persuadestoo many to play it safe. Some succumb to the temptation of benchmarking, refusing to stray too far from their index in case they get lost along the way. They operate like trackers, butwith higher charges.
Others get too active, nervously flitting between different assets and instruments to cover their backs in case markets crash.
You dont have to do any of this. If your portfolio falls, nobody minds but you. This allows you to play a longer game. You can buy an out-of-favour stock and bide your time until it comes back into fashion. And there is no boss to shout at you during an annual review.
YouHave Greater Freedom
Most fund managers play to strict rules. Theycan only invest in certain assets or sectors. Theymust keep a percentage of their portfolio in cash. Or hold a minimum number of stocks, which dilutes performance. And they have to dump stock when investors sell up.
You, frankly, can do what you like.
You Are Cheaper
If you hire a fund manager, you have to feed him. Many will swallowup to 1.5% of your moneyeach year, even if your investments fall in value. Others will help themselves to juicy performance fees, at your expense. Your services, however, are free. If you invest in individual stocks, all you have to pay are trading charges, stamp duty, and maybe thebid/offer spread. And you can keep those to minimum with a buy and hold strategy.
Brand-new figures from S&P show that 55% of actively-managed funds investing in the UK equity market underperformed in 2014. Thats right more than half werent up to the job. Maybe the competition isnt so dauntingafter all.
That meansyou could havebeaten more than half of all fund managers simply by investing in a low-cost index tracker. Investing isnt football. The little guy can win.
To beat the big guys regularly, you need a strategy.
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