I enjoyed reading a book, published in 2011, by Allan Roth, titled “How a second grader beats Wall Street”.  Basically the books sets out the principles the author says make good investment and it is not so much about his second grader son beating Wall Street, but the lessons that he has taught his second grader son, and his advice on how to invest one’s money.  

The real key principle is that very few investment management firms ever beat the Index and you pay them fees of approximately 1,5% or 2% a year to not beat the Index when you could get an Index ETF at a cost of probably 0,2%.  The cost difference does not sound like much, but when you take it over the months, the years and the decades, the extra 1,5% you are paying ends up costing you a lot.  It reminds me of any time I flick across the local financial shows, and I don’t really watch them, ranging from Business Day TV to Summit TV and the local CNBC and how the tips for shares are always been promoted by some late 20’s young stockbroker in a suit.  It is seldom somebody who has been through two or three market crashes and is 45 and that is probably because most of those people have made so many predictions that have gone wrong, that the companies need to put fresh faces on TV.  When you think about it though, you cannot make decisions based on somebody, probably no more than two or three years out of University, just giving their opinion and while I understand that they are generally highly paid, it seems to be a career that only lasts a few years for the vast majority of them.  

The bottom line though is according to the author of the book is that in most cases they are being highly paid for nothing – by taking a low cost Index fund of the whole market you would normally achieve better returns for yourself than you would by listening to all of the talking heads representing all the competing firms who are all quite happy to not match the Index, and charge you handsome fees for doing so.