Index investing should be the basis of your equity investment

Via an article in The Economist (link) we are once again reminded of some old truths when it comes to investing and funds. That the mutual fund industry continues to provide funds with relatively high expense ratios (in my anything over 1% is excessively high) means that there is a demand for them.

Of course I am not suggesting we should forbid them, but for the average rookie investor (like myself) it can be valuable to be reminded of a few "truths":

- then bank is seldom your advisor and more often interested in selling something to you

- running a fund handling 10 million or 1000 million does not generate a lot of additional cost for the bank, so the more people they can convince to invest in their "unique" (read high cost) funds, the more profit they will make at a diminishing cost-effort

- the basis of all investment portfolios (at least if you have decided to go into equities) should be low cost (less than 0.2% annual fee) index funds

- it is impossible to determine which funds will over time outperform index - even for those who have done so in the past

- time in the market is more important than exactly which funds you choose

- what seems like a small difference in fees, will over time make a large difference in what you end up with

So, if you are into investing, think for yourself, take advice from people who do not have a vested interest. There are plenty of bloggers out there and also many good forums, e.g. the Bogleheads forum.

While I do own some stocks and mutual funds, I generally avoid high cost funds and instead opt for the cheaper index like ones as basis of my investments.

How do you invest?