Quality has its price: the lower, the better
Investment Funds. Costs influence the return on any investment. In the case of equity funds, additional annual costs of 1.5 per cent in the case of a one-time investment can halve the capital growth in the long term. Many studies clearly show the connection: Cheaper funds are more attractive in the long term than more expensive ones. We, therefore, advise against funds of funds, because here you get paid twice.
Consultants who advise you on a commission basis also earn money from these annual costs, because they receive a portfolio commission. Products that neither consultants nor the fund industry earns much from are reluctant to sell.
We recommend so-called exchange-traded index funds. These funds do not need expensive fund management because they replicate a stock index such as the Dax. That saves costs and increases your return.
The Past Is Over, The Future Uncertain
Anyone looking for the best funds of the past will always find them. But don’t expect that this quest can help you make decisions about the future.
The best funds of the past few years will at some point be average, because of course, the managers of these funds cannot predict the future either. On top of that, if you move up to the top of fund rankings, you usually run an above-average investment risk. At some point, this will take its toll on, and it is not uncommon for today’s top funds to mutate into tomorrow’s flop funds.
Back And Forth Makes Pockets Empty
Because the future is so uncertain, you shouldn’t try to get into funds at the lowest price and sell at the highest price. This causes unnecessary order fees. Plus, you probably won’t have a lucky hand with this. In any case, many studies have already shown that private investments fare worse on average, the more they trade. Comforting: the professionals are not doing any better.
Discipline Pays Off
You can only expect the long-term returns from equity funds, which many raves about, around 7 percent per year, if you implement your investment strategy with discipline, even when the capital markets get restless.
Two common mistakes to avoid: Don’t buy equity funds because they are doing pretty well right now. And don’t sell equity funds just because they’re doing poorly. The stock markets are always exposed to capricious price capers. Only those who are not impressed by this have a chance to reap long-term returns without significant losses.