Archive - June 24, 2011

1
Why Our Economy Needs Negative Interest Rates
2
Why Index Funds Beat Actively Managed Mutual Funds
3
How To Invest Over the Long Run Like Warren Buffet

Why Our Economy Needs Negative Interest Rates

People ask about things like “will the dollar be devalued?” Or “what investments hedge against devaluation”? To answer these questions one should look at the big picture of the economy and see that there is a need for interest rates to be negative in order to stimulate the economy.

With the risk of an unfundable series of sovereign bond defaults in the Eurozone, and a potential for a crash in China, the whole world is at risk of falling into Japan-style deflation.

If rates become negative then foreign investors would sell their dollar holdings to invest in countries with higher …

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Why Index Funds Beat Actively Managed Mutual Funds

There has been a lot of research that explains why index funds outperform actively managed mutual fund. I thought I’d share a distilled version:

An index fund has low turnover because it knows what stocks it will invest in; whatever stocks are in that index. Furthermore, because it knows the stocks it is going to invest in, it doesn’t have to pay a manager big bucks to beat the stock market. That means low fund expense ratios.

Actively Managed Funds

On the flip side, an actively managed fund has to try to beat the stock market by constantly buying and …

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How To Invest Over the Long Run Like Warren Buffet

In his Preface to the Fourth Edition of Benjamin Graham’s legendary book The Intelligent Investor, Warren Buffett wrote the following:

To invest successfully over a lifetime does not require a stratospheric IQ, unusual business insights, or inside information.  What’s needed is a sound intellectual framework for making decisions and the ability to keep emotions from corroding that framework.  This book precisely and clearly prescribes the proper framework.  You must supply the emotional discipline.

I’ve seen the same sentiment boiled down and paraphrased a bit, also attributed to Mr. Buffett (although I couldn’t find the original source) as:
It only
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