Connect with us

Others

Would You Like To Buy A Porsche For Your Hedge Fund Manager?

Here is why you should always aim to reduce the fund management cost that you are paying


This article was first published by Cheerfulegg

Is there a celebrity you’ve always wanted to meet?

Justin Timberlake, President Obama, Steve Jobs, Justin Bieber (so you can punch him in the face)?

For a geek like me, I’ve always wanted to meet the “celebrities” in the investing world. Not many people know who they are, but they’ve changed the lives of millions of people by teaching them how to invest the right way.

So when bestselling author Lars Kroijer contacted me saying that his team had found my blog and he liked it, I was kinda like this McDonald’s drive-through lady meeting Selena Gomez.

Totally getting hot and sweaty here.

Okay, but I’m getting ahead of myself. Who is this person?

Introducing Lars Kroijer

lars-kroijer-3In the index investing world, Lars is da bomb.

He’s the author of 2 books: Money Mavericks: Confessions of a Hedge Fund Manager and Investing Demystified: How to Invest Without Speculation And Sleepless Nights. The latter has been on the investing bestseller lists for the past 3 years in Europe.

What’s cool about Lars is that he used to be a hedge fund manager. When I was in college, “hedge fund manager” was the sexiest job in the world – all my friends wanted to be one. (The title “tech entrepreneur” wasn’t in cool yet)

But according to this New York Times article, Lars had a change of heart in 2006. After doing the numbers, he realized that hedge funds – the very thing he was running – were terrible investments for the average investor. For example, if a hedge fund earned 10 percent in a year (a very optimistic scenario), only 3 percent would end up in investors’ pockets. The other 7 percent would be eaten up by dozens of layers of fees.

Lars calculated that over the course of your lifetime, an average investor could pay up to $400,000 in fees to their money manager, or the equivalent of 7 Porsches. (In Singapore, that can probably only buy you one Porche, but still.)

He concluded that the average investor would be much better off buying a cheap Vanguard index fund and paying 0.2 percent in total fees. Not only are index funds cheaper, they’ve repeatedly proven to perform much better than active investing strategies.

That helped Lars do a complete 180-degree turn – and he’s now a champion of index investing.

For Those Of You Who Hate Reading…

Even though I’ve been blogging about index investing for years now, I know some of you hate reading about it cause it’s boring. (What? Why wouldn’t you get excited about Modern Portfolio Theory and Efficient Frontiers?)

So for those of you who hate reading, Lars has an excellent 6-part video series explaining index investing as a concept. Here’s Lars:

The Investing Demystified video series is based on the premise that most investors can’t beat the market (or pick investment funds to do so for them). Those investors would be far better off  in the long run with a simple and cheap portfolio, comprising of various index funds.

Here’s the first overview video:

The other videos – which you can find on his site kroijer.com – go into more detail, including:

  • Why so many people believe they can beat the market
  • The only equity investment you’ll ever need
  • How to tailor your portfolio to suit your risk profile
  • How to select the right products to build a hyper-efficient passive portfolio, and keep your strategy on track

Think about how this applies to you

Many of us have seen courses promising that we can get superior investing returns with their “secret” strategies.

But let’s get real: Hedge funds have billions of dollars and armies of analysts at their disposal – yet 9 out of 10 of them can’t even beat the market. Do you honestly think that your $1,999 course has a better strategy than they do?

Knowing this, what do you think is the best way for you to invest?

To read more articles from Cheerfulegg, subscribe to their Cheerfulegg‘s VIP List.

Top Image

DollarsAndSense.sg aims to provide interesting, bite-sized and relevant financial articles.

Learn together with like-minded Singaporeans at the Personal Finance Discussion SG Facebook Group by discussing a range of personal finance topics.

If you have not done so, subscribe to our free e-newsletter to receive exclusive content not available anywhere else.