Tony Robbins: More Chatter on Index Funds & Mutual Funds

“But how do you pick the right funds? There are certainly enough to choose from. As we mentioned earlier, there are about 9,500 mutual funds in America—more than double the number of publicly traded US companies! So it’s safe to say the mutual fund market is a tad saturated. Why do so many companies want to be in this business? Yup, you got it: because it’s fabulously lucrative!
The trouble is, it tends to be much more lucrative for Wall Street than for actual customers like you and me. Don’t get me wrong. I’m not suggesting that the industry is consciously out to screw us. I’m not suggesting that this is a business full of crooks or charlatans! On the contrary, the majority of financial professionals are intelligent, hardworking, and thoughtful. But Wall Street has evolved into an ecosystem that exists first and foremost to make money for itself. It’s not an evil industry made up of evil individuals. It’s made up of corporations whose purpose is to maximize profits for their shareholders. That’s their job.”

Excerpt From: Tony Robbins. “Unshakeable.” iBooks. https://itunes.apple.com/us/book/unshakeable/id1146849403?mt=11

Scary, isn’t it? Was asked a question recently about “how can we take a leap of faith when we live in such an uncertain world?” It’s an excellent question.  If you look at the Crypto markets right now, we’re heading for a some really nasty times — maybe? Some of the investors are still amazingly optimistic, but I’m still a bit terrified about it.

That’s when we get into Index Funds…and the reassurance in this chapter glistened my eyes.

Index funds take a “passive” approach that eliminates almost all trading activity. Instead of trading in and out of the market, they simply buy and hold every stock in an index such as the S&P 500. This includes companies like Apple, Alphabet, Microsoft, ExxonMobil, and Johnson & Johnson—currently the five biggest stocks in the S&P 500. Index funds are almost entirely on autopilot: they make very few trades, so their transaction costs and tax bills are incredibly low. They also save a fortune on other expenses. For one thing, they don’t have to pay enormous salaries to all those active fund managers and their teams of analysts with Ivy League degrees!” – Tony Robbins

“When you own an index fund, you’re also protected against all the downright dumb, mildly misguided, or merely unlucky decisions that active fund managers are liable to make. For example, an active manager is likely to keep a portion of the fund’s assets in cash, ready to invest if an enticing opportunity arises—or ready to meet redemption requests if lots of investors decide to sell their shares in the fund. Keeping some cash on hand isn’t a bad idea, and it’s handy when the market falls. But cash doesn’t earn a return, so it will underperform stocks over time, assuming that the market continues its general upward trajectory. Ultimately the resulting “cash drag” tends to have a negative impact on the returns of actively managed funds.
What about index funds? Instead of sitting on cash, they remain almost fully invested at all times.”

 

Leave a Reply

This site uses Akismet to reduce spam. Learn how your comment data is processed.