Sunday, August 22, 2010

Why Small Investors (and pigs) Get Slaughtered

The psychology of investing leads people to invariably jump in and out of investments at the wrong time. Been there, done that.

Investors withdrew a staggering $33.12 billion from domestic stock market mutual funds in the first seven months of this year, according to the Investment Company Institute, the mutual fund industry trade group. Now many are choosing investments they deem safer, like bonds.

The recipe for loss, or at least middling returns, is to sell on type of investment on the downturn and buy another when it’s ascending. Put simply, we sell low and buy high. These people are buying into bonds as they are riding high.

Take free advice for what it’s worth, but the Occam’s razor portfolio would likely beat any managed mutual fund over the long run. It will 3 ETFs and 10 minutes of work a year.

Put 40% of your money into BND which is a total market bond ETF. Put 30% of your investment money into VTI which covers the entire US market from low to high. And put the remainder into VEU which is an index that invests in the whole world excluding the US. Choose a brokerage with cheap commissions which will re-invest dividends for you. Rebalance back to the 40-30-30 split once a year and Bob’s your uncle.

When  it comes to investing, I’ve done all the dumb things.



  1. I made some dough buying BP @ 28 and selling it at 38. It's going down again and I'll do the same thing.

    I'll kiss Limabaugh's ass before I ever buy a mutual fund again.

    I still have the Exxon and GE. GE scares me. My shares have a cost basis of $17 but that's cause I bought 300 @ $8 last year. Would have got more but that was all the cash I had at the time. I should have sold when I was at break even oon the whole lot and started over but for some reason I was an idiot the week it was running around 19.

    I love this stuff. You can't have this much fun with a mutual fund. It's easier to track individual stocks and brag to the nutty professor that a pinko commie made money.

  2. Yeah managed mutual funds are a ripoff, Truth. Glad to hear you're doing well with beating the capitalists at their own game. I'm more of a buy, hold and pray investor myself.