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Set It and (Mostly) Forget It Investing [2]

In my last column, I talked about the index fund and also mentioned Warren Buffet’s views on it. After studying, researching, reading a-lot-of-finance-business books, paying for expensive training and certification on Financial Planning, only to end up advocating a “Lazy Investing Way” is pretty weird.

Whenever you do anything, you should ask yourself: “Do I want to do this every day for the rest of my life?” Usually, the answer is NO. That means you want to try to minimize or eliminate that task entirely.And after seeing that suggestion from Mr. Warren Buffet himself, that pretty much sealed the deal in my pursuit of Lazy Investing.

Note: If you don’t know who Warren Buffet is, he’s one of the richest men in the world and it is not hard to argue him being the greatest investor the world has ever seen.

I’m not saying you shouldn't buy individual stocks. If (and this is a big "if") you have the time and desire to properly research companies to invest in, and are committed to building and maintaining a well-diversified portfolio, go for it.

My point is that most investors don't have the time, energy or desire to do all of this, so the other option is fund investing. And simply buying a collection of businesses and letting them do the work for you is a far better option than paying hefty fees to some fund manager or spend a lot of ‘small accumulated’ expenses in doing trial-and-error by yourself through an online stock broker.

Let me start by defining what a pooled fund is, borrowing the definition from Investopedia.com: “Funds from many individual investors that are aggregated for the purposes of investment, as in the case of a mutual or pension fund. Investors in pooled fund investments benefit from economies of scale, which allow for lower trading costs per dollar (peso) of investment, diversification and professional money management.”

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A pooled fund can be private (those from investment clubs/groups, partnership, trusts), Mutual Fund (Investment Companies), UITF (Unit Investment Trust Funds – from Banks), ETFs (Exchange Traded Funds in the Stock Market) or even a the investment portion of a VUL (Variable Life Insurance).

Each of these types of fund have their advantages or disadvantages (which you can research by yourselves), but all these funds have what we call an “Index Fund”. An index fund is a type of fund with a portfolio constructed to match or track the components of a market index, like the PSEi.

The Index Fund intends to achieve for its participants investment returns that track the performance of the Philippine Stock Exchange Index (PSEi) by investing in a diversified portfolio of stocks comprising the PSEi, and aims to provide a return that tracks the performance of the PSEi.

You are basically invested in the top companies in various industries in the Philippines. And you can invest for as low as Php5,000. Oh, and make sure that it is a ‘low-cost index fund’ and also take advantage of automation as well (auto-savings or easy investment plans; the bank/fund house/insurance provider should have this option for you!).

Disclosure: I am invested in one index fund and a dividend-yielding mutual fund as well as a VUL-index-fund. This is not a solicitation or investment advice and is for informational purposes only.

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The writer is an RFP® - registered financial planner and helps people through CERTA, Inc.’s financial education programs (www.certa.ph). He is also a Real Estate Broker, author of the award-winning personal blog – www.vernongo.com and an Instagram travel-micro-blogger (@PhantomNomad).

vernongo@gmail.com.

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