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What we believe

The logical approach

 

Every investor wants to beat the market. The way to do it, we’re constantly told by the investment industry and the media, is to choose a fund manager with the expertise to pick the right stocks.

But the evidence shows that markets are broadly efficient and that, in the age of the Internet, when everyone has instant access to the same information, it’s very rare that an “active” fund manager outperforms the market consistently for three or more years. Nor is the past a reliable guide to future performance, so identifying which fund managers will be the stars of tomorrow is almost impossible.

What’s more, when added together and compounded over time, the charges imposed by actively managed funds are a huge drag on investment returns. It’s not unusual for a pension investor, for example, to lose a third of their eventual returns in charges and other fees, many of them hidden in the small print.

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A far more sensible approach, we believe, is to adopt a long-term, highly diversified and largely passive investment strategy.

Although every investor is different, we believe that index funds, which track an entire market at very low cost, should form the basis of any portfolio. Depending on their attitude to risk, sensible investors also invest to a greater or lesser extent in bonds, which are much less volatile than equities.

In addition, they may choose to ‘tilt’ their investments towards, say, small company stocks or value stocks, which the evidence shows tend to produce higher returns over the long term. Whatever they choose, investors should always keep their costs as low as possible.

But sensible investing also requires discipline. Markets will always rise and fall, and studies have repeatedly shown that investors who try to time the market usually fail. The important thing, during inevitable periods of volatility, is to sit tight and stick to your chosen strategy.

The sensible investing philosophy is based on more than a century of rigorous research - including studies by Nobel Prize winners. That research continues today, and as and when there are new developments in our understanding of how markets work, we will let you know.