{"id":7331,"date":"2014-01-15T14:26:35","date_gmt":"2014-01-15T22:26:35","guid":{"rendered":"http:\/\/www.marketriders.com\/investing\/?p=7331"},"modified":"2016-12-21T07:28:13","modified_gmt":"2016-12-21T15:28:13","slug":"best-investments-novice-investors","status":"publish","type":"post","link":"https:\/\/www.marketriders.com\/investing\/best-investments-novice-investors\/","title":{"rendered":"Best Investments For Novice Investors"},"content":{"rendered":"

For many people, the first step is the hardest. As a result, the novice saver and investor ends up being in cash.<\/p>\n

And that’s where they stick, for years. The 401(k) industry has slowly moved toward “opt-out” plans with\u00a0target-date funds precisely because people won’t start saving, save far too little or sit in cash for decades.<\/p>\n

What’s wrong with cash? Inflation, for one thing. Even moderate\u00a0inflation<\/a>\u00a0slowly diminishes the value of your money. \u00a0Ten thousand dollars in 1983 is the equivalent of $23,389 today. You would have to grow your money at least at the inflation rate to avoid falling behind.<\/p>\n

\"best<\/a><\/p>\n

Nevertheless,\u00a0buying stocks<\/a>\u00a0and bonds with better returns is daunting. As a result, savers are shepherded into mutual funds run by money managers, who buy stocks or bonds on their behalf.\u00a0In the case of\u00a0target-date funds, it’s often both, and the manager winds down the risk level over time.<\/p>\n

That’s a great innovation, but the downsides of mutual funds and\u00a0target-date funds are numerous.<\/p>\n

Mutual funds, for instance, rely on the notion that a given manager will outperform the market. Once you add in the ongoing fees of\u00a0active management<\/a>, that goal becomes less and less likely.<\/p>\n

Target-date funds have the same risk. They purport to solve a problem \u2014 painless, reliable compounding \u2014 while virtually guaranteeing a subpar experience thanks to the fees they charge.<\/p>\n

So what’s a novice investor to do? One way forward is to simply buy\u00a0index funds<\/a>\u00a0instead of mutual funds. If you seek the return of the S&P 500, you aren’t going to get much closer than by owning an S&P 500 index fund or ETF. Such funds use computers to replicate the index and charge a tiny fraction of the fees charged by active managers.<\/p>\n

Your best investments<\/h2>\n

If the idea of “set it and forget” appeals to you, then an alternative to a target-date fund might be one of the\u00a0Vanguard LifeStrategy Funds<\/a>. Being index funds, they are mighty cheap to own. You can dial up or down your exposure to risk by choosing from a small range of options, from income to growth.<\/p>\n

If you want something a touch more sophisticated, consider building a\u00a0balanced portfolio of\u00a0ETFs<\/a>.\u00a0That way, you get the low cost of index\u00a0ETFs\u00a0and the\u00a0risk-adjusted return<\/a>\u00a0commonly experienced by pension funds.<\/span><\/p>\n

Any way you slice it, the key is to lower costs and take on precisely measured amounts of risk. It’s not necessarily about “beating the market” but beating inflation by a wide enough margin while allowing your money to safely compound until you need it, in retirement.<\/p>\n","protected":false},"excerpt":{"rendered":"

For many people, the first step is the hardest. As a result, the novice saver and investor ends up being in cash. And that’s where they stick, for years. The … Read more →<\/span><\/a><\/p>\n","protected":false},"author":8,"featured_media":7332,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_wp_rev_ctl_limit":""},"categories":[4],"tags":[],"yoast_head":"\nBest Investments For Novice Investors | MarketRiders<\/title>\n<meta name=\"description\" content=\"The best investments take on precise amounts of risk. 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