Indexing Works – But Don’t Take My Word For It

The disadvantage for a personal finance blogger that loves index investing is that there is only so much to be said about it.  I used to say that it simply isn’t a “sexy” strategy, but then again I consider having a million dollars in my bank account while investing minimal time and energy into a complicated investment strategy pretty sexy, so I guess beauty is in the eye of the beholder.  Whereas “value investors” and “dividend investors” get to go on and on about picking the right stock at the right time and different strategies for doing so, us index-types are stuck splitting hairs and basically repeating ourselves saying, “If you do this consistently and semi-automatically and stay out of your own way by not outsmarting yourself, you will be ready to retire at 55 with a million dollars in the bank.”  For my money, Dan Bortolotti over at Moneysense and the Canadian Couch Potato blog is pretty much the man when it comes to the minutiae of how to build an ultra-efficient low-cost investment account that revolves around indexing principles.  If you’ve read my free ebook on the topic I definitely encourage you to go over to Dan’s site and just why these theories work so well in addition to a substantial amount of research and proof to back up his assertions.

Everyone’s Favorite Teacher!

index investing worksAfter Dan on my personal list of investing experts, there is a guy name Andrew Hallam who has released the most recent gospel of index investing called, “The Millionaire Teacher”.  Plainly with a title like that the book caught my attention.  Since reading the in-depth how-to-index guide I’ve followed Andrew’s blog and media appearances and was not surprised at all to see him representing us boring old indexers in the new Globe and Mail series that is comparing a few different types of investing.  Check out this article as an introduction to Andrew if you haven’t read our review of his book.  In fact, if you have the time, check out the whole investing series that is being written by fairly well-recognized authors in their fields.  Here is a snapshot of Andrew’s current portfolio, the one that allowed him to become a millionaire on a teacher’s salary (*spoiler alert: There is nothing extraordinary revealed, just patience and trust in basic math).

The best article in the series so far in my opinion is this one that the former teacher wrote on how he has come to settle on index investing after years of buying into dividend and value strategies and even belonging to an investment club.  Isn’t it sweet that the best form of investing for retail investors is also the easiest?

Just when I think the Globe and Mail can’t do much better than bringing Mr. Hallam on board with their new project, they release a great post on why mutual funds suck as part of the series (written by Chris Umiastowski).  If you’re too lazy to click over to the site, the three main reasons are:

1) The measurement period: Mutual fund managers have a short-term bias because their compensation levels are tied to juicing their immediate outlook.  Who cares about three years down the road when they are Romney-rich right?

2) The bonus bias: Umiatowski explains how performance bonuses for artificial timelines can radically affect a manager’s decisions.

3) Migrating managers: As I noted in my article on hedge fund managers, nearly anyone that is really a talented fund manager these days would be crazy not to go into the hedge fund world where you have way more freedom and make insane amounts of money.  Many funds cite their 5- or 10-year record when in fact today’s manager bears no resemblance to that of yesteryear for the exact same fund.

Some Cool Education Stuff Too!

In addition to these great investment articles, I also have to give some serious dap to the Globe and Mail for the recent series under their “Our Time To Lead”   column that is taking a look at some of the challenges and advances that are taking place on the Canadian post-secondary education scene.  While I definitely don’t agree with all of the articles in the series, it is a cool look at some outside-the-box solutions and the possible evolution of education in our country.

It’s pretty rare I’m this impressed with mainstream news offerings, in fact I’m often pretty critical of them considering I have no real credentials.  Naturally, as soon as I start giving credit where it is due the G and M is going to start charging people to view their online content.  I definitely sympathize with online content providers trying to monetize their product, but I’m not sure how well this will work out for the iconic Canadian paper in terms of market share.  Anyway, check these articles out for a look at precisely how you can become a millionaire on a teacher’s salary and put almost NO TIME into your investment plan.  It seems too good to be true, but the best plans in life are usually simple ones!

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