Save, Invest, Build Wealth

I Need to Invest Now! Robot or DIY? And More Finance Reads

By in Links, Personal Finance | 0 comments

Should I Invest on My Own or Go Robo? And More Inspiring Financial Reads

Robo-advisors are exploding across the investment landscape. These digital investment advisors are competing with human financial advisors for investment dollars and pushing down fees. Consumers benefit by greater choice and lower fees. But, are you better off investing on your own, or going digital?

The Old School Passive Investing Approach

Followers of the passive index fund investing strategy strive to match market returns by investing in a diversified portfolio of low-fee index mutual or exchange traded funds. This approach was initially introduced in 1975 when Vanguard created the first index fund, Vanguard Index Trust. Index fund investing has grown in popularity as reams of research show that most active fund managers underperform the indexes. CNBC.com recently touted this finding in an article by Tom Anderson, “Active fund managers rarely beat their benchmarks year after year”.

Investing, money, retirement reading list

So, if you’re reasonably sophisticated and follow the passive investing strategy, you can invest on your own. Buy a few index mutual funds or ETFs, reinvest your dividends, rebalance annually and you’re on your way to a market matching investment strategy.

And if you think matching the market returns is for losers, check out the data. Aswath Damodaran of NYU Stern School of Business keeps a running tally of aggregate returns of the S&P 500, T-Bills and T-Bonds from 1928 through the end of each year.

Geometric Average Asset Class Returns for 3 Time Periods

 

S&P 500

3-Month T. Bill

10-Year T. Bond

1928-2016

09.53%

03.42%

04.91%

1967-2016

10.09%

04.83%

06.66%

2007-2016

06.88%

00.73%

04.58%

Source: http://pages.stern.nyu.edu/~adamodar/New_Home_Page/datafile/histretSP.html

Just considering the last 10 years, a 60% S&P 500 and 40% 10-Year Treasury bond portfolio would have yielded an annualized 5.96% return. That’s a conservative investment approach and includes the recession and 2008 market meltdown of -36.55% S&P 500 return.

But, before you DIY, find out if a robo-advisor might offer an investment strategy for you.

Read the rest of this article on Seeking Alpha.

 

More Money and Investing Articles

 

Post a Reply

Your email address will not be published. Required fields are marked *