I think that teenagers can beat the share pros at investing.
That’s not to say a teen just out of school can whip up an incredible discounted cashflow model for the best growth shares.
I just mean that it’s possible for a teenager’s portfolio to generate returns as good as, if not better, than a share investment pro (after fees).
There are some factors that you can point to which give regular investors an advantage. They can more easily invest for the longer-term. Fund managers are commonly judged by their short-term returns. Regular investors can also make unique investment choices.
How teenagers can match the investment returns of the share pros
I think a key fact is that regular investors can invest in exchange-traded funds (ETFs) that are based on an index. The whole point of an investment manager is to invest differently to the index. But the ETF is just following the returns of an index. An index is just a predetermined collection of businesses. Both the Australian share market and the US share market have produced very solid returns over the years.
A high percentage of share pros don’t outperform their respective benchmarks each year in both the US and Australia. Particularly when fees are taken into account. There are a few managers out there that I think are worthwhile, but plenty of others are just broadly following the index whilst taking hefty fees.
So if a teenager were just to invest in index-based ETFs then they would likely outperform a large number of share pros, with no investment skill required. Sounds easy, right?
What ETFs would make good options for teenagers? I like the US-focused iShares S&P 500 ETF (ASX: IVV), the Australian-focused Vanguard Australian Shares Index ETF (ASX: VAS) and the global-focused Vanguard MSCI Index International Shares ETF (ASX: VGS).
Where to invest $1,000 right now
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*Returns as of February 15th 2021
Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia has recommended Vanguard MSCI Index International Shares ETF. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.
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