It’s hard to determine whether the Australian market is heading for a Bull market, or retreating to a Bear market, at the moment. You can see from today’s performance and the last 12 months that it seems we are only treading water with a positive 12 month return of 1.46%. Hardly exciting!
Forget about whether we are in a Bull or Bear market. All you need to do is regularly contribute over the longer term.
Seems so simple so why don’t we all do it?
Index investing first became broadly available to U.S. investors with the launch of the first indexed mutual fund in 1976. Since then, low-cost index investing has proven to be a successful strategy over the long term, outperforming the majority of active managers across markets and asset styles (S&P Dow Jones Indices, 2015). In part because of this long-term outperformance, index investing has grown exponentially, particularly in the United States, and especially since the global financial crisis of 2007‒2009. In recent years, governmental regulatory changes, the introduction of indexed ETFs, and a growing awareness of the benefits of low-cost investing in many world markets have made index investing a global trend.
Financial Choice has led the market in adopting Index investing with ETF’s since 2008.
One of the simplest ways for investors to gain market exposure with minimal costs is through a low-cost index fund or ETF. Index funds seek to provide exposure to a broad market or market segment through varying degrees of index replication, ranging from full (in which every security in the index is held) to synthetic (in which index exposure is obtained through derivatives).
We expect the case for low-cost index fund investing to hold over the long term. Like any investment strategy, however, the real-world application can be more complex than the theory would suggest. This is especially true when attempting to measure indexing’s track record versus that of active management.
The most important part is time and how we use it
Time is an important factor in investing. Transient forces such as market cycles and simple luck can significantly affect a funds returns over shorter time periods. These short-term effects can mask the relative benefits of low-cost index funds versus active funds in two main respects: the performance advantage conferred on index funds over the longer term by their generally lower costs, and the lack of persistent outperformance among actively managed funds.
What difference can a professional financial manager or adviser make?
Understanding the importance of selecting index funds or ETF’s in a particular sector or region is critical in delivering exceptional performance over a long term. The assistance of an asset allocation expert and financial adviser who can match your risk profile to certain markets to reduce the volatility is critical in portfolio construction.
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