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Check out this investing video series on www.kroijer.com by Lars Kroijer, who used to run a hedge fund in London. Basically it says you can’t beat the market, and explain why that is important.
For investors from Australia the message is – “don’t invest in Australia. You already have plenty of domestic exposure”. As an example, if you buy Australian stocks for your investment portfolio, you are adding concentration risk as you are already exposed to the economy via your job, house, insurance, etc. Instead you should try to decrease the correlation and concentration risk in a portfolio by investing globally. That way you lower the risk of losing money on your domestic investments at the same time and for the same reason (decline in local economy) that you lose your job, job prospects, your house is worth less, potentially your education worth less, etc.
The same argument holds as to why you should avoid over-investing in real estate. Most people who invest in property do so in geographic areas that they are already massively exposed to (near where they live). You might find that your local Sydney real estate market decline 30%, but that potentially happens while the world equity market is unaffected (like have been the case many times / places in the past). While a 30% decline in the Sydney real estate market would be bad news for most people there then at least your investment portfolio would offer some respite from tough local conditions.
So the core message of the videos is diversify broadly and cheaply and in the long run you would overwhelmingly likely do far better than if you try to beat the market by picking a portfolio of Australian stocks.
It’s as easy as watching a cute cat video online, except it’s about index funds! But if you spend six minutes watching the first video it change how you think about investments. Also, it may save you reading 200 pages of an investment book or give you a good riposte for next time a broker calls you with a hot stock tip….
If you buy in to the message of the videos it will make investing a lot simple going forward and you’ll probably be far less confused about all the choices out there. We are all much too busy to go through all the choice so the simple message is great. The philosophy that it’s ok to not be able to beat the market will help the young saver who is too busy making headway in a career to spend evenings and weekends trying to outperform. Anyhow, it’s certainly worth 6 minutes…
The series consist of five videos – here is a bit on each:
Video 1: Investing Demystified – (Intro Overview – Part 1 of 5)
The Investing Demystified video series is based on the premise that most investor can’t beat the market (or pick investment funds to do so for them). Those investors should only buy world equity index trackers for their equity exposure, and can easily implement the simple and cheap portfolio tailored to their risk profile. They will most likely be far better off in the long run as a result!
Video 2: Investing Demystified – (You can’t beat markets or pick a fund to do so for you – Part 2 of 5 )
Far too many people believe they can beat the market – and far too few people have any incentive to tell them otherwise.
Video 3: Investing Demystified – (Only buy cheap World Equity Index Trackers – Part 3 of 5 )
The only equity investment you’ll need to hold is a world equity index tracker – it is cheap and diversified. Crazy yes, but it really can be that simple.
Video 4: Investing Demystified – (The simple portfolio to suit your risk – Part 4 of 5 )
Vary the proportion of your portfolio that’s allocated to the lowest-risk assets – cash and government bonds – to suit your risk profile.
Video 5: Investing Demystified – (Implementing the Investing Demystified portfolio – Part 5 of 5 )
How to select the right products for your hyper-efficient best-in-breed passive portfolio, and how to keep your strategy on track.