September 5 - Small Percentages Pack Big Punches

        Chapter or Rule #3 of Mr. Hallam's book, Millionaire Teacher, dishes out proof after proof of why nobody should invest in mutual funds.  Rather, they should invest in index funds. Mr. Hallam suggests three different index funds to have in your portfolio: 1) U.S. Stock Index Fund 2) International Stock Index Fund and 3) Government bond index.  Each index fund should take up one-third of your portfolio.  If one of the indexes grows too much, you should sell some of it and use the sales to buy more of the other two indexes.  For example, say your US Stock Index is taking up 30 percent of your portfolio, your International Stock Index is taking up another 30 percent, and the Govt. bond index has 40 percent.  You would want to sell some of your bonds and buy more international and US stock indexes so the portfolio settled at 33%, 33%, and 33%.  You always want them even because if for some reason one of the indexes drops, it won't have a huge lasting effect on your portfolio as a whole.
        In class, Mr. Hallam was telling us stories of how some families put all of their child's college savings into mutual funds.  When the stock market crashed in 2008, they lost all of their savings.  However, if they had put all the savings into an index fund, they would have lost just a percentage of what they lost with mutual funds.  Here is an article talking about how Americans, since the stock market crash, have lost faith in the market and aren't willing to invest their money: http://themoneyupdate.com/tag/invest-their-savings/.  Interestingly, this article gives no advice on investing passively; rather, it concludes with a link to the site of a personal financial advisor! This article is telling the public that it is safe to invest when really, mutual fund investing isn't.  It's a shame that worried Americans can be sucked back into the schemes of sweet-talking advisors, when they could be saving much more safely by investing in the entire stock market.
        Here is a link to Tobin's last blog: http://sb-sas17682.blogspot.sg/2012/09/september-4th-beating-hedge-funds.html. In it, Tobin discussed Mr. Hallam's "Couch Potato Investing" blog.  Tobin relays Mr. Hallam's evidence that just one hour of portfolio re-arranging a year can save you hundred of thousands of dollars than can be lost through mutual funds. I wonder if hedge fund managers will still have their monstrous salaries towards the second-half of our lives. Perhaps by then Americans will realize that they are the wrong way to go.