Where the Pros Stash Their Own Dough, Part 1

Want to invest like the pros? Well, this piece from Money can help you do so by giving you the secrets used by several investment pros when handling their own money. Here's part 1:

I don't try to beat the market

"I invest the way I think most small investors should invest: via top-down asset allocation, using mostly low-cost index funds."

That's not shocking advice. But what may be surprising is that it comes from former Merrill Lynch Internet analyst Blodget, whose bullish forecasts for Amazon.com and other stocks helped fuel the stock-picking mania of the tech and Internet bubble.

"Top-down asset allocation, using mostly low-cost index funds" pretty much describes my investment style, and as I've said before, it's been pretty successful for me. If you want more thoughts on this investment strategy, see these posts:

• Don't Give Up on Index Funds Yet
• The Case for Indexing
• Investing Made Easy, Part 2

Click here to read part 2 of this series.

Comments

[gc]

I'm a big proponent of index fund investing and preach to whoever asks my opinion on investing. What I'm amazed about is the number of people who still believe they can outsmart the market. "Why settle for market returns? With a little research I can definitely do better!" This is the response I hear when I talk about index funds. Analysts spend countless hours researching and most can't beat the market. When are people going to understand?

[Jason]

Hah, I wouldn't trust anything that Blodget wrote or said. He's back providing research, though as per the terms of his sentence, he isn't allowed to provide buy or sell recommendations.

I don't think indexing is as much of a no-brainer as everyone says it is. If you're going full-out into the asset-allocation portfolio diversification theory though, you can't just buy an index fund that tracks the S&P 500 though. If you do, then you're just stuck with US equity risk, which defeats the whole purpose of asset allocation/diversification. You also have to be careful about choosing your indices - Emerging Market Indices in particular might have nasty tax ramifications (stuff gets removed all the time). Finally, ETF's (if you use them) can be rather thinly traded in those positions, meaning the bid-ask spread kills you.

[Rod]

I use Fidelity index funds for stocks and bonds.. You should be tired by now when one day the jobs hiring soars and then the next day funds a down because housing might not have been what was expected.. or that the latest hurricane will harm insurance companys profits.. well the traders act like a bunch of old wash women who are worried about the price of laundry powder.all the funds whether index or not are going to follow the prevailing trading winds.. so you are just best off to keep costs low..