Part 7: Going Beyond Index Trackers

So there we have it. The Motley Fool’s guide to Getting Started In Investing.

In summary…

1) Get out of debt.

2) Start investing now.

3) Shares have been the best home for your money over the past 30 years.

4) Picking which actively managed fund will out-perform in the future can be like finding a needle in a haystack.

5) Index tracking funds have low charges and history has shown, will likely out-perform the majority of actively managed funds.

6) Invest regularly, ideally at least monthly.

7) Hopefully you’ll live happily and financially comfortably ever after.

We’d recommend that you look at Australian index trackers first and ideally, you want one with annual charges of 0.75% a year or less.

For many people, regular investment in an index-tracking fund will cover a large chunk of their investment needs.

However, if you want to try to beat the market, and have some fun along the way, you’ll have to do a little more work. That’s where The Motley Fool aims to help.

Buying funds

The first way you can try and beat the market is by investing in actively managed funds. As we’ve said previously, many managed funds under-perform the humble index tracker, so this is a lot tougher than you might think.

But there are funds that have outperformed in the past, and will outperform in the future. We’ll look to highlight such stellar performers in the years ahead.

With funds, you can also decide that you want a bit more exposure to overseas markets like the US or the emerging BRIC countries (Brazil, Russia, India and China). Or you may want to focus on a particular sector like healthcare or technology.

You can, of course, get trackers that follow other markets and sectors. The ever expanding range of exchange traded funds (ETFs) is a good and cost-effective place to start.

One thing to beware of is investing in a region or sector just because it’s done well recently. We’re hard-wired to take recent events and extrapolate them far into the future. It’s a condition called, err, recent events syndrome. Many new funds are launched on the back of what has done well in the last two or three years, often just as this particular investment runs out of steam.

Just ask investors who bought US Technology Funds in 1999 how they fared.

Buying individual shares

Here at the Fool, we think everyone should own at least a few shares.

As always, it’s important to keep your costs down, both nominally, and in percentage terms. That’s why you’ll likely want to open an online brokerage account, where buying and selling shares can cost you as little as $15 per trade.

When it comes to choosing individual shares, again The Motley Fool aims to point you in the right direction. We’ll be highlighting some investment ideas, and more importantly, steering clear of hyping the prospects of some speculative mining company whose shares are trading at just 3 cents each, and ARE SURE TO DOUBLE IN THE NEXT WEEK!!!!


One thing we haven’t touched on is asset allocation, but this is something you need to consider as your portfolio becomes more substantial.

Asset allocation is the process of maintaining a broad spread of different assets. The idea is simple — by owning assets that do well under different economic conditions, you can make your overall portfolio less volatile but without reducing your overall returns. We have some specifics on asset allocation in Your 13 Steps To Financial Freedom.

That’s it Fool. You’re ready to start investing. Hop to it, enjoy it, and most of all, profit from it! Good luck.

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