Trading is active work. It requires you to inspect the stock based on technical or fundamental analysis. Investing should be passive in nature, allow the stock to work when you are resting.
We frequently see reports of how actively managed funds continue to under perform their market benchmarks. In fact, Financial Times have published many articles showing this. 9 out of 10 active funds under perform benchmark. In another report, FT shares 86% of active equity funds under perform.
This is an important conclusion. If we know that most actively managed funds do not beat the market, you should invest in the market cheaply. After all, passively managed funds have the lowest costs and now, the highest returns over time.
There is a book I would like to introduce to you. John Bogle, the founder of Vanguard wrote a few books and this is one of them that will help your investment mentality. I have some simple fund selection rules that will help you.
- Select lowest cost passive funds. ETFs are usually good choices. But there are risks. So make sure you buy cash based ETFs
- Broad diversification — the more diversified you are, the better you have managed your risk. I urge you to read some of these well published articles and the short book written by John Bogle.