Book of Wise Investors

When you invest, you want returns. However, there are many ways to measure performance and since investing in mutual funds is what the majority of us have to do in order to achieve financial freedoms or any other goals, it is important to learn how to measure performance. Most people measure fund performance by just simply looking at its historical returns. The rationale behind it is simple, if a fund is unable to achieve satisfactory returns in the past, what makes us think that it is going to do so in the future.

However, by basing your decisions on which…

As mentioned earlier, an observation regarding the large discrepancy between the returns of small and large caps at any given year and that fact that this discrepancy last for several years mean that investors can generate greater returns than just simply buy and hold for more than 20 years. As you shall see in the following illustrations, one just needs to follow two simple steps when deciding to hold either all small or large caps ETFs in the coming year.

The stated asset allocation model is based on a single assumption.

As will be expected from historical data and the

…

If you ask a woman how much does that LV bag costs, chances are she can most probably tell how much it cost within a dollar margin. However, if you ask her how much she pays “talented people” for professional money management, there is also a good chance that she got no ideas. There exists the same probability that she is paying much more for money management than for her LV bag. If there is a financial adviser managing her wealth, the fees will be around $3000 to $5000, coupled together with 1% fee for a $100 000 portfolios, which…

First and foremost, there is a large discrepancy in performances when measured over more than 5 years period, between small and large caps throughout the decades. There are times when large caps stocks gained as much as 30% while small caps lost 2% or doubled in value. As a result, there have been greater returns than simply buy and hold ETFs that tracked the broad market when ordinary investors switch from small caps to large caps and vice versa at suitable times. The bad thing is neither your commission based financial adviser or mutual fund managers are going to decide…

We have been told by the high priests of finance about the importance of investing of future and not saving only, so as to beat inflation. We are also told that even professionals find it tough to time the market, let alone ordinary people like you and I. Put out any charts for the past 40 years for returns on various assets classes, chances are equities brings the highest return over a 40 years period of all assets classes. The conclusion is that we should invest in some actively managed mutual funds/unit trusts with high transaction fees, high load fees…

When it comes to analyzing the value of an asset, for example, stocks, ideas of discounted cash flow, competitive advantage of a business and whether the prices are reasonable enough came to mind. However, when investing in a particular asset classes and sub classes as a whole, you need some other perspectives that will assist greatly in generating higher returns and further reducing risk. These additional mental models include social conditions, market cycles, worse case scenarios analysis, financial analysis and financial market analysis.

When considering investing in any of the major asset classes, it will be wise to…

We kept talking about risks when investing in the three well known asset classes like if we were lost some or all of our capital due to many factors involved but failed to consider one particular risk that will result us in losing some or all of our capital that has got nothing to do with what we actually invest in.

We all know that mutual funds are in general are diversified, how diversified it is for active managed funds will depends on each specific fund and for the case of passively managed index…

Although it is unlikely that one is going to lose every single cent when investing in mutual funds, unlike complicated structured products, a person can still sustain heavy losses that almost never recover. Just ask those who invest in technology funds during the dot com bubble. As with any other investments, risks is curial to consider even for mutual funds – an investment vehicle with so called diversified in many different companies’ stocks and bonds. The following points are needed to take note regarding risks of pooled investments like mutual funds.

The risks for mutual funds is different from the

…