Fund Managers Are An Expensive Luxury Paid For From Your Pocket!

Brisbane, Australia (PressExposure) May 13, 2009 -- So what is an index fund? It is an investment fund that is managed to track a particular sharemarket index, and so provide a very similar return that would be achieved from an investment in every company that is represented in the index.

An index fund is considered a passive fund, which differs from an actively managed fund that attempts to outperform the index. However, active funds employ teams of highly-paid analysts in their pursuit of outperforming their particular index, and as a consequence the fees that are paid out of investor’s funds are much higher.

Active management fees range from 1 - 2% pa of the capital that you invest, and a further 2 - 4% in commission is paid to the Financial Planner who helps you get into them. This means that you would need to earn a return of at least 3 – 6% on your funds in the first year just to break even!

The question that arises is whether you are receiving true value, or indeed a better return on your investment, from paying these extra charges in an actively managed fund?

Research has shown that less than 20% of fund managers will outperform the overall market in any given year, and those top-performing fund managers are not the same from year to year. Therefore investing in one of last years winners makes it unlikely that they will outperform the market again this year or next.

It is therefore almost impossible to consistently beat the index. Warren Buffett has said: “Cheap tracker funds will beat most managed funds over the long term.”

So if managed funds don’t regularly outperform the index, why not go straight to the source and buy an index fund direct? Here are some good reasons to buy an index fund:

• It takes the pressure off your expectations – slow and steady proves itself time and time again • It’s cheaper to invest, it costs you just 0.3% of your invested capital or less in some cases • Takes the stress out making individual investment decisions • You can invest in them without having to go through a financial planner • Index funds deliver better returns than most actively managed funds

Paying unnecessary fees for no additional benefit is not a good strategy in anyone’s book. These fees come out of your capital before your funds are invested. Why pay for expertise when there is not a long term consistent result. Reducing the drain of fees on your investment capital will have a compounding effect over the long term, making a difference of tens or hundreds of thousands of dollars in your retirement capital.

Of course, unless you have been investing for a while and have access to impartial research, you probably haven't heard about index funds before. This is because index funds are rarely advertised, rarely make the top of the performance tables over a short period of time, and since they generally don’t pay commissions, they are not considered by financial planners and advisers.

There is a whole series of index funds listed on the Australian Stock Exchange, which can be purchased for only the cost of normal share brokerage. These funds track the Australian S&P 200, as well as international indexes such as the American S&P 500, and the Global 100, Asia 50, Euro 350, and Emerging Market indices.

Things you can do in conjunction with your Financial Coach

• Research investment options that suit you • Develop your investment strategy and then stick with it • Consider starting with an index fund as the core of your portfolio • Take action today!

What you can do today to make a start:

• Look for alternatives to managed funds • Consider exchange traded funds and listed investment companies (another avenue to invest in the index) • Check out • Work with your wealth coach or a mentor

“Disclaimer” Although every effort has been made to verify the accuracy of the information contained in this material, Wealthyfrog AFSL Pty Ltd, its officers, representatives, employees and agents (“Wealthyfrog”) disclaim all liability (except for any liability which by law cannot be excluded), for any error, inaccuracy in, or omission from the information contained in this material or any loss or damage suffered by any person directly or indirectly through relying on this information. Wealthyfrog has no associations with the financial product(s) or service(s) mentioned in this material. “General Advice Warning”. This material has been prepared for general information purposes only and not as specific advice to any particular person. Any advice contained in this material is General Advice and does not take into account any person’s individual investment objectives, financial situation or needs. Before making an investment decision based on this advice you should consider whether it is appropriate to your particular circumstances. Where the General Advice relates to the acquisition or possible acquisition of a financial product, you should obtain a Product Disclosure Statement (“PDS”) relating to the product and consider the PDS before making any decision about whether to acquire the product. Richard Starr is an authorised representative of Wealthyfrog AFSL Pty Ltd, Authorised Representative number 296825. Wealthyfrog AFSL Pty Ltd; AFSL 276895; ACN 101 092 228 []

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“Other advice warning” Before acting on any of the information included in this article please seek professional financial advice. This article was re-produced with the permission of Wealthyfrog AFSL Pty Ltd; AFSL 276895; ACN 101 092 228. Richard Starr is an authorised representative of Wealthyfrog AFSL Pty Ltd, Authorised Representative number 296825. Copyright © 2009 Wealthyfrog. All Rights Reserved

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Press Release Submitted On: May 12, 2009 at 5:30 am
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