What's the catch? After all, most Wall Street investment managers, roughly 70 percent, tend to trail the overall market average over the long term, despite spending a lot of time researching companies, reading extensive reports, tracking the moves of the Dow Jones Index and huge churning of the portfolio. So how does a small investor got any chance of outperforming most of the experts?
Here's how you do it: Buy an index mutual fund and set up a checking account deduction plan that automatically buys additional shares(units) of the index mutual fund each month.Then sit back and watch your money grow. It's that simple !
Termed dollar cost averaging or systematic investment plan, the system relies on the volatility of the market to ensure that the investor automatically buys more units when markets are down and fewer units when markets are up.
And the real kicker is, you can do it automatically through a checking deduction plan, so the process continues to work without any physical, mental, or emotional involvement from you.
The question you may have is, if it's that simple and that reliable, why doesn't everyone do it? Why waste your time reading earnings reports, tracking price/earnings ratios, following the market, and agonizing over when to buy and when to sell, if you can use index fund dollar cost averaging with no effort?
Why? Boring!
Investors play the market because they enjoy it. Trying to beat the market can be fun and exciting. You pit your wits against the market experts, playing your hunches, making some buys and sells, in the process leads you to lots of excitement. But on the other hand, the above mentioned passive investing provides you no such fun, but you are left with peace of mind and good amount of market-returns. The choice is with the investor !