The best investment fund that any investor can invest money in is not a hedge fund. This best investment rarely if ever underperforms the stock market or bond market, is highly regulated to protect investors, and charges low fees and expenses. Sound interesting?
A hedge fund is not designed for average investors. In fact, unless you meet certain qualifications you can not legally invest money in this type of investment fund. For one thing, you need to be rich by the average person’s standards. A hedge fund can be very risky and quite expensive to own. Plus, hedge funds are not highly regulated by the government.
The best investment fund for average investors can take the form of a stock fund or bond fund. We’re talking about a specific kind of mutual fund here, and these investment funds (mutual funds) are heavily regulated to protect the investing public. Mutual funds are actually investment funds that are designed for average investors.
Specifically, we’re talking about INDEX FUNDS of the no-load variety. What’s so great about them?
First, index funds virtually never underperform their benchmark. They are not actively managed in an attempt to outperform other stock funds or bond funds. Instead they are passively managed to track a stock or bond index. For example, an S&P 500 index fund simply buys and holds the 500 stocks in that benchmark stock index in the proper proportion.
If you invest money in one of the these S&P 500 index funds and the stock market as measured by this index returns 15% for the year … you should earn about 15% as well. You will actually earn a bit less due to charges, fees and expenses.
The good news is that some index funds cost nothing to buy and they are low-cost to own. First, because they are not actively managed the management expenses are relatively low. They don’t pay a staff of analysts and managers to pick stocks and/or bonds to invest in. They simply invest money and maintain an investment portfolio that duplicates the holdings in an index.
Second, some mutual funds levy sales charges when you invest money and others do not. Sales charges are called “loads”. No-load funds do not hit you with sales charges.
The best investment fund for my money is a no-load index fund, whether it tracks a stock index or a bond index. If I invest money in a stock index fund and the index returns 15% for the year, I’m willing to give up ½% or so for expenses.
On the other hand, you can pay 5% off the top in sales charges and 2% a year to invest in an actively managed stock fund and hope they beat their benchmark. I wouldn’t bet on it, since most of them don’t.