Index Investing – Finally Made Realistic and Fun

Index investing often means two things… BORING AND CUMBERSOME! Too often though the psychological portion of investing takes over. Everyone knows that this is about the worst possible thing but unfortunately that doesn’t change anyone’s decisions. People want the action, to see the stock on CNBC blow out the 52 week high, and to just be part of the next big thing.

So when people think of index investing these thoughts normally don’t come to mind. Let’s face it though index investing off the March Low’s of 2009 would have brought over a 60% return! Not bad in less than a year’s time. Further, here at Clariti Research we understand the love for excitement because that’s what building the EMPIRE is all about! We want the thrill of glory, the joy conquest, and the growth of personal dreams. By the end of this article we hope to help make index investing more fun, profitable, and realistic while helping you avoid the pitfalls put out by Wall Street.

Now in the 21st century when it comes to indexing it’s time to update your investment vehicles. Today, if you want to properly index we think ETF’s are the way to go. As well, the term ETF stands for “exchange traded fund” for people not familiar with the term. In particular we like the iShares ETF’s for a few reasons we’ll review shortly.

The first advantage of ETF’s is that they’re more liquid investment vehicles than mutual funds. ETF’s you can sell in the open market in live time…mutual funds not possible. Here is an example of why this might be important to an investor. When we all saw the DOW tank about 700+ points on one day in 2008 people who held ETF’s could liquidate their positions in the live market while mutual fund holders couldn’t.

Now we like iShares ETF’s in particular because they are the largest ETF firm in the world and have the most liquid ETF’s generally. When you’re invested you’re on Wall Street that means playing with the pros. So playing with the biggest most recognized player in the ETF industry makes sense to us and helps minimize rookie mistakes. Remember you’re not a rookie you’re a personal EMPIRE builders!

A second advantage of ETF index is they offer greater investment transparency. ETF index’s quote live in the market all day. What this means is all investments held must be disclosed in live times to give accurate pricing of an ETF index. Mutual funds only have to disclose 4 times a year on what they hold! In fact you could call your “financial professional” right now, ask him what all your mutual funds hold, and I doubt he would even have a clue.

Unless he’s friends with the mutual fund manager he knows about as much as you do from the last quarterly statement disclosure. With an iShares Index ETF like (IYY) or (IVE) you can go on the iShares website anytime to see every company it holds, what industries, financial ratios like the P/E, percentages, and so on. Mutual funds look like dinosaurs when compared to ETF’s. The sad thing is mutual funds have done little to change to become more transparent even with ETF’s competing against them. Really shows what priority they take toward their investors.

A third advantage of ETF’s particular to iShares is the management fee. On average iShare’s index ETF’s have fee-management cost of.4%. The average mutually fund cost after fees, charges, and whatever else they try to tack on comes out to about 2% or sometimes 3% on the high end. So at a minimum over 10 years they’re taking 20% no compounded (2% times 10 years) from you. Let’s face it all these mutual fund indexes are trying to do is replicate an index not even beat it. Maybe if they were trying to beat the indexes then we could understand justification for a higher fee.

At the end index investments with iShares ETF’s does exactly what we want. From a professional standpoint they offer lower management costs, immediate access to our investments via liquidity, and track the long term index performance. From a psychological standpoint it offers us the excitement of live pricing in the market, let’s us know when we can yell for joy when we see something on CNBC via transparency, and to know we’re in the action just in a more diversified manner.

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