If you talk with 10 different advisors, they’ll all have their own opinion as to what the best way to invest for retirement is. Some prefer actively managed investments. Some prefer passively managed investments. Some like to trade daily while other advisors like me prefer a combination of actively and passively managed investments. The point is, you need to do some homework and figure out what strategy resonates with you.
Since neither active management nor passive management has superior performance in all market environments or asset classes (large cap, small cap, international, fixed income, etc.), I think it’s smart to incorporate both strategies into your investing plan. Therefore, I’m a staunch advocate for using low-cost index funds, enhanced index funds and exchange traded fund (ETFs) in my broadly diversified private client portfolios.
An index fund or ETF has many advantages over an actively managed investment but let me name just a few. First, an index fund or ETF will enable you to own a broadly diversified basket of stocks or bonds. This will help to reduce risk by not having all your eggs in one basket. Because the goal of the manager is to replicate a benchmark and is not being asked to actively manage these holdings, this allows management fees and transaction costs to be kept to a minimum. This cost savings could translate into thousands of extra dollars in your pocket over time.
Most Traded ETFs:S&P DEPOSITORY RECEIPTS:
POWERSHARES QQQ TRUST:
SPDR FD FINANCIAL:
ISHARES RUSSELL 2000 INDX FD:
To learn more about retirement investing, you should visit websites such as CNBC.com, or any mutual fund company website. There are volumes of free information available on the web. Additionally, check out your local library, visit Amazon.com or any book store and search through their Personal Finance section. There are literally thousands of titles to choose from on investing. As a special courtesy to my CNBC readers, I have prepared a free 25-page report you can download on investing entitled "What Wall Street Doesn't Want You To Know"(PDF). Enjoy!
Bill’s Bottom-line: Read, listen and learn about different investments and strategies. In the end, your financial well-being is your personal responsibility.
Find out more about ETFs:
- Fight Inflation with These ETFs: Expert
- ETF 101 6/3/09 (video)
- ETF 101 6/10/09 (video)
Bill Losey, CFP®, CSA, America's Retirement Strategist®, is the resident retirement planning expert on CNBC’s “On the Money”. He has been named one of America’s Top Financial Planners and is the author of Retire in a Weekend! The Baby Boomer’s Guide to Making Work Optional. He also publishes Retirement Intelligence, a free weekly award-winning newsletter. Bill can be reached online at www.MyRetirementSuccess.com.