So she started a blog for her new book, Young, Fabulous and Broke. In one of her posts, she was arguing for indexing, specifically index funds. To illustrate her point, she had a link to a fund expense calculator. I'm personally a big proponent of index funds and ETFs because of the low expense ratios that they boast. The rationale behind indexing is that the market is efficient -- information is freely available.
The Efficient Market Hypothesis states that at any given time, security prices fully reflect all available information. [...] if markets are efficient and current prices fully reflect all information, then buying and selling securities in an attempt to outperform the market will effectively be a game of chance rather than skill. -- Investor HomeAs several analysts have point out however, markets in developing countries are usually inefficient. Savvy investors can then take advantage of this inefficiency and find deals that other people have missed. This means it is indeed possible for mutual funds in these countries to outperform the index. It seems to be the case that the Singapore market is inefficient. The Shenton Thrift fund beat the STI index by at 4% annualised over their respective lifespans. Using the calculator, I found that with the typical 1.5% ER of a mutual fund, it needs to outperform the index by 1.5% to achive similar returns. Given that one can do dollar cost averaging with mutual funds, I guess a good fund can prove to be a good deal.
My original plan was actually to build an index only portfolio. After these considerations, I guess I shouldn't disregard mutual funds totally.
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