Picking a winning fund is about as easy as picking the winning men’s NCAA team and even then, it may come down to a lot of luck and one excellent buzzer-beater three-point shot. Dan Solin discusses the problem with hiring and firing fund managers based upon passed performance and how the methodology doesn’t work when examining the data. His advice is similar to what you would find in our playbook, “Abandon the elusive goal of trying to “beat the market” by selecting outperforming actively managed funds. Limit your investments to a globally diversified portfolio of low-cost, passively managed funds that capture global market returns. Focus on your asset allocation (the division of your portfolio between stocks and bonds) and deferring or avoiding taxes.” Dan also cautions those with 401K plans and managers operating within this methodology, it might be time to start paying closer attention to the retirement process.
The Three Principles
1. Save for a rainy day.
Develop a long term financial plan.
2. Don’t put all your eggs in one basket.
Diversify in different asset classes.
3. There is no such thing as a free lunch.
Capture the entire return of each basket, or asset class, through low cost index funds.
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