Financial Management, Resolution for 2020
In just a few days, we'll be saying goodbye to 2019, and we'll be welcoming a new year and a new decade. This means another resolution for everyone. Mostly, New Year's resolutions are typically health-related, like aiming to lose a few pounds, exercise more often, or try to quit smoking. However, there is another essential resolution that most people need to make in 2020 - taking control of their own financial destinies.
No to Money Managers
Yes, it is much convenient to invest money in mutual funds. Then, let the fund managers do all the hard work when it comes to increasing your wealth over the long run. However, fund managers are not really that great at their jobs if you try to look into the data. Yearly, S&P Dow Jones Indices is responsible for revealing the SPIVA U.S. Scorecard, a report that analyzes the performance of fund managers to their most closely linked benchmark index. And instead of trying to compare each fund to the performance of the broad-based S&P 500. The SPIVA U.S. Scorecard takes several factors into account to give an accurate apples-to-apples comparison of how money managers are doing relative to the wider market. Back in 2018, the report displayed that almost 69% of domestic equity funds underperformed their benchmark index. However, things get so much worse after looking to it more in-depth. Out of the 17 major U.S. equity fund categories in the SPIVA report, 88% underperformed their benchmarks over a five-year period, 84% over a 10-year period, and a shocking 89% over a 15-year period. Now, these money managers may have established wealth for their clients. But if you had just bought an index fund, your portfolio might have more money 9 out of 10 times than putting money in mutual funds. Some are asking how fund managers who invest other people's money for a living suck at their jobs. First off, a lot of fund managers are only looking in the short term and ignore the wealth creation that can be found in holding an investment for long periods of time. Another reason is that most of them are too focused on being liked by the firms they own a stake in or cover and fail to see the risks associated with an investment. In addition to that, there's seldom any accountability. And no matter how good or bad the outcome of the money performs, fund managers are still going to get paid. Above all, these are some reasons why it is much better if you take control of your own financial destiny, not just in 2020, but in the coming years.
If you decided to handle your financial destiny, investing doesn't need to be hard. If there is an event that you don't feel comfortable analyzing individual firms or don't have the time to devote to doing so, try to think of purchasing an index fund or a targeted fund. On the other hand, if you aim to have individual stocks, look into companies within the industry you work or within industries or sectors inside your interest. Then, you'll come away with more intriguing investment ideas.
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