Tuesday, November 14, 2006

Know Thy Self and Index Investing

Over at the Canadian Capitalist, he has an interesting post on index investing and investor average rate of return. The general idea is that it is hard to beat an index (TSX, S&P 500, etc) by choosing your own stocks. The main reason for this is the index cheats. It picks up the winning stocks and dumps the sinking stones for you.

Early this year I changed my retirement mutal funds over to all index funds because I realized that I'm not that good at doing my own research yet. To cover myself from being tied to just one index I have the following breakdown:

25% Bond Index
25% TSX Index
25% S&P500 Index
25% International Index

This is the high growth version of the Couch Potato portfolio which I read about in MoneySense magazine. Overall I'm very happy with the results to date. Even with the big income trust bomb I'm still ahead with about 8 months into the new portfolio.

I think the major thing about doing a system like this is being honest with yourself. How much time can I put towards investing and can I really beat the index? If you don't know or you know you can't beat the index I would suggest using index funds.

No comments: