How can fund investors prepare for years of lower returns?
For starters, they should control what they have control over when choosing mutual fund investments – costs, expense ratios and tax efficiency. Next, consider having a large chunk of foreign equity in the portfolio. I’m well known for ignoring overseas investments – I thought they were too expensive and too full of speculative accounting practices. However, I’m worried about the US economy now – our excessive borrowing for costly wars, an underfinanced pension system and the dollar’s weakness. In the next few years, I’m planning to put as much as 20% of my equity holdings into foreign stocks. That includes 10% in developed countries and 10% in emerging markets. Third, don’t equate simplicity with stupidity. Warren Buffett likes to say that for investors as a whole, returns decrease as motion increases. In other words, more trades won’t necessarily boost returns. In fact, the less trading investors do, the better off they tend to be. How do you pick investments? I allocate my assets
