Question: Which is better – index funds or managed funds over the long term?
Answer (By Paul Rickard): Long term – the data says that if you are considering a fund investing in major stocks, go index.
Active funds typically underperform, due to the higher management fees.
If you are considering a fund providing exposure to a sector or smaller companies, I would consider an active manager, rather than an index fund.
There is a strong case that where the information is less transparent/less analysed, the market is inefficient. Active managers here can add value.
I would mitigate the “manager risk” by splitting my investment over two or three managers.
Question 2: Over the years, my wife and I bought CBA shares when it was first floated and gradually built up a portfolio with a Dividend Reinvestment Plan (DRP). We currently have about 1400 shares and our average buy price is around $45.00. We recently transferred all of them to our SMSF in pension phase. I recently read an article elsewhere, to sell CBA shares when the market value is high to protect the capital. If I sell them now, where can I invest?
Answer 2 (By Paul Rickard): While interest rates remain on hold and the prospect of any interest rate increase seems so far off, I am not a seller of CBA. It pays to stick with the strength – and there is no doubt that CBA is the best-run bank in Australia. I don’t see too many alternatives.
I always invest on an asset class/sector basis (i.e. through a portfolio of stocks) so I really can’t answer your question without understanding what other stocks you own and your overall exposure to shares.
Important: This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. Consider the appropriateness of the information in regards to your circumstances.
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