Wednesday 15 January 2014

Additional benefit of index funds

the index fund is a saving angel

As I did mentioned in the December 2013 summary (that I did not manage to publish until well into January 2014) there was a good thought that formed due to me feeling forced to sell shares to be able to give credit to my private company and this was:

That there is an additional benefit of having a large part of the, in my case retirement, savings in an index fund and that is that one will care much less about selling part of it off for unexpected expenses.

If I would have had even as little as 25% of my portfolio in and index fund then I would have easier sold off the part that I now need to take out in cash. I would not have either thought about it or been concerned about it because the parts only represents the grey mass of companies that added together makes the index fund.

There would also not have been large regrets since there would not have been an individual company that I could afterwards look up at follow their continued development after my sale.

In a way it is strange that it is like that because the performance of an index fund over time is well known and maybe by selling that off I am creating the biggest performance loss of my life but mentally that will be much easier to tackle then individual stocks.

I will think a little bit more about this but I find the idea sound.

Just like the "saving" Angel in the picture an index fund with a low fee will save us all!


Anonymous said...

Don't forget it is likely to beat an index fund over time as they are chasing each other and the index. They are indeed locked in in their hunt after the index.
But of cause, you should not take big losses in your investments but rather avoid them before they have grown big. Big losses are only ok when the whole market goes down.
Anyway, why do German financial stocks all of a sudden go up?

Fredrik von Oberhausen said...

Yeah, I hope my contrarian stocks will start to perform better very soon!

They think in the newspapers that the share price increase is due to that ECB stated that sovereign bonds will be rated at market value. The good results from the US banks is probably also pushing up expectations.

Sorry I have no further information.