When investing,focus on what really matters - Episode 75

Episode 75 – When investing, focus on what really matters

Stem from original research done back in 1986. It stemmed much debate, and so in 2017 it was substantially re-worked and tested to see that the original findings continued to hold weight.

The key original finding was the key determinant of a portfolio’s performance was its asset allocation. We’ll get into what asset allocation means in a moment, but the significance of this finding was what had been found not to be an important driver of performance – stock selection and market timing.

The original research only looked at US data, but the more recent re-work sourced data from Canada, the UK, Australia, and Japan, in addition to the US. Interestingly the findings were very consistent across all these markets.

They studied Balanced funds across these markets and worked with 25 years worth of data – from 1990 to 2015.

The next level down is, having determined the asset allocation, should you engage Active fund managers who research and trade stocks regularly, or should you instead simply by the market by way of an index fund. The Index fund approach is also known as passive investment, and I talked about this back in episode 58.

Index funds make no effort to pick winners or try to out-smart the market. They simply provide the market return at the lowest cost.

The key take out from episode 58 was:

“63% of Australian active funds and 84% of US active funds fail to beat the benchmark after fees. So is that a bet worth taking?”

Promote the Getting started with investing Lead magnet through this episode, as per Ep 58.