How many Americans understand the stock market?

[julien]

It has been proved that, on average, funds under-perform as compared with the market as a whole (a traditional market index, for instance). However, funds serve a very special purpose: they allow investors to match their portfolio with a given risk profile (or investment profile: for instance, some investors do not want to invest in the weapons industry, etc ...). Hedge funds are known to provide much higher returns, but they do so thanks to high risk-taking and unconventional investment methods (the most successful hedge fund ever was the mysterious Renaissance fund, averaging 35% return since 1989).
Even more intriguing, a classical result of finance theory proves that active portfolio management (that is to say stock-picking) on average cannot perform better than passive portfolio management (that is to say index tracking) ... but that's another topic

P.S.: investing in stocks for your retirement plan is good only on the very long term (20+ years) and it is best practice to invest in a rather conservative index tracker in order to allow for the diversification of the idiosyncratic risk; also, it might be a good idea to invest into inflation-protecting industries (or buy some real estate, which is equivalent).

[Ajax215]

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[Ajax215]

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Stock Market Investing

[InsideInformation]

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