The characteristic for we in the investments that are low cost and simple. Many investors often run into trouble when they invest in things that do not have these characteristics. Investments with these characteristics have been profitable over time, but typically are not very exciting. The financial services industry generally does not favor these type of investments because they generate very little profit from them. Our job is to helping to maximize the wealth of our clients, not the financial services industry. Keep in mind that this list of investment characteristics is not comprehensive. Other factors to look for in investments might include attractive valuation, low correlation to your other holdings, a nice dividend yield or interest income, a tilt towards areas of the market that have produced higher returns such as value stocks, an appropriate risk level for you, etc.Excellent Investment Characteristics Click To Tweet Many investors often run into trouble when they invest in things that do not have these characteristics. Click To Tweet
1. For the Low Cost characteristic.
We always invest in low cost index based funds and exchange traded funds. The funds that we invest in have an average expense ratio of only.30% per year. The typical actively traded equity mutual fund has an average expense ratio of 1% or more. With investment funds, the best predictor of future relative performance is the expense ratio on the fund; the lower the better. Hedge funds typically have annual expense ratios of 2% plus 20% of any profits earned. Some variable annuities and permanent life insurance “investments” can have annual expenses of 2% or more. By keeping a close eye on the costs of our investments, we can save our clients significant amounts of money each year and help them achieve higher returns over time. With investment products, you don’t get better performance with a higher cost product, in fact you typically get worse performance.
2. For the Simple characteristic
We more prefer the investments that are simple, transparent, and easy to understand. If you don’t understand it, better don’t invest in it. All of our investments are simple and transparent. Complicated investment products are designed in favor of the seller, not the buyer, and usually have high hidden fees. Examples of complicated and non-transparent investments that we generally avoid are hedge funds, private equity funds, structured products, some life insurance investment products, variable annuities, private company stock, startup company stock or loans, etc. If can, make everything as simple as possible, but not simpler.
Finally, we believe that most investors should have the majority of their portfolio invested in things that have these excellent characteristics. By doing so you will avoid plenty of mistakes, negative surprises, and risks along the way. These excellent investment characteristics will be a good screening device for possible investments and good factors to think about when you are going to investing.