One of the biggest mistakes people make when investing is simply making things too complicated, says Bradley Thomas Giordano.
According to Bradley Thomas Giordano, there is no singular, correct way to leverage one’s assets. But, Bradley Thomas Giordano believes that keeping fees low and adopting a long-term buy and hold strategy with passively managed index funds typically works well for most investors.
Pick a low-cost, long-term mutual fund
According to Bradley Thomas Giordano, low cost, passively managed index mutual funds yield returns that are often superior to active trading strategies or actively managed investment vehicles over the long-term. This is particularly true after adjusting for the heavy fees active managers will often charge clients for their services. Passively managed index funds simply track an index, such as the S&P 500, or select group of stocks, such as the U.S. energy sector, with the goal of mirroring the returns achieved in the model stock group. Such index funds are relatively easy to understand, and do not require the attention of active managers seeking to achieve returns above and beyond those achieved in the larger stock market. As such, Bradley Thomas Giordano explains, investors do not have to pay the same high annual fees to invest in passive index funds, which can lead to thousands of dollars of additional savings.
Understand mutual fund pros and cons
With that said, a passively managed index fund is an investment over which the typical investor has no real control, aside from the money deposited, says Bradley Thomas Giordano. Investors do not get to choose the individual stocks held within the mutual fund, or the relative weights of individual stocks within such funds. Consequently, Bradley Thomas Giordano notes that active fund managers will often counter the passive management strategy by arguing that such funds are over-subscribed in stocks that performed well in the past, and are not good at predicting future performance. While this criticism is not without merit, Bradley Thomas Giordano notes that there is no guarantee that active managers can pick next-year’s winners either. Indeed, it is relatively rare for most fund managers to consistently beat the returns of the larger stock market, and even rarer for such managers to beat the market by enough to justify their large annual fees.
One of the most often overlooked benefits of passively managed mutual fund investing, according to Bradley Thomas Giordano, is that a few investments can simulate a diverse portfolio. For example, an investor may be able to achieve a balanced portfolio with proper exposure in the overall U.S. equity markets, international equity markets, and bond markets by doing as little as investing in one fund that tracks all three such indices, according to Bradley Thomas Giordano.
Listen to the real experts
Bradley Thomas Giordano explains that while he is by no means an expert in financial planning, his views on the subject are influenced by leaders in the field, such as John Bogle and Warren Buffet. John Bogle is the founder and former CEO of The Vanguard Group, which is the largest provider of mutual funds in the world. Warren Buffett, on the other hand, as the chairman and CEO of Berkshire Hathaway, has made most of his wealth through targeted investments in and acquisitions of companies. While both men have achieved success in different ways, they both have publicly stated that average investors would be well-advised to buy and hold passively managed index funds, says Bradley Thomas Giordano. While that position may be expected from Bogle, Bradley Thomas Giordano was surprised to learn that Warren Buffet advocated a similar approach. Indeed, Buffett reported that he instructed to trustee of his estate to filter 90% of his assets into an S&P 500 index fund for the benefit of his wife. Ultimately, Bradley Thomas Giordano suspects that Buffett’s rationale for advocating this strategy is that he understands that not everyone has the time or ability to achieve the results he achieved with Berkshire Hathaway.
No single approach fits all circumstances
While a long-term strategy to buy and hold low-cost investment vehicles may make sense for individuals with lots of time before retirement, it is important to remember that the stock market can both be volatile and slow-growing. As such, Bradley Thomas Giordano cautions that each individual should carefully consider their financial goals and timeline before pursuing any course of action. Indeed, those with longer horizons before retirement are those that stand to benefit most from a strategy relying on the steady growth of domestic and international equity markets.