Been having a very good year economically and want to invest most of
the money. One broker is telling me to put the money in a no-load
mutual fund. Another broker is talking up
Exchange Traded Funds.I do not understand ETFs at all.
Looking for help with investment choices.
Some rules that always seem to work.
During a bull market, invest in large cap
During a declining (bear) market, go small cap & healthcare
Never forget, 89% of all fund managers fail to beat the market (S&P 500). So while they're unpopular because they're always measured against market leaders (and if you know how to always pick the market leading MF, let me know), they are guaranteed to beat 89% of all Mutual Funds, so it makes sense to always keep a significant % of you money into a good index fund.
GG,
Your above post is not exactly correct.
Markets go in cycles. During the early portion of a bull market, value stocks typically out pace growth stocks. In addition small to medium stocks tend to out pace large caps early in the bull market cycle. Late in the cycle, there will typically be a sector rotation toward the larger, high PE growth oriented names.
As for buying small caps during a bear market, that's a poor strategy. Small caps usually head lower first. In addition during a bear market the smaller stocks will have fewer resources to weather the storm and are more likely to end up in bankruptcy. Once the market has bottomed, the small the medium value stocks will typically lead the way out, but you don't want to be in them on the way down. During a bear market yield is your friend, as it will help put a floor under a stock. However you must watch the cash flows to insure the dividends are safe, and be care in a rising rate environment.
As for professional money managers always selling their looser immediately, that just not true. This is a general rule for the short term trade, those trading for days or weeks, but not for the long term money manager. When managing large sums it can be difficult to quickly move in or out of a position because the size of your trades will move the market. In other words, if a large funds wants to take a 3% position is a given security, chances are their purchase will move the stock higher in the process providing them a higher entry price then they would of likes.
As for 89% of all funds failing to beat the S&P, that's from a very old vanguard study done during a late bull market when retail investors where heavily investing in index funds. Other studies done during late bear and early bull markets have yielded vastly different results with the active managers out performing the indexes.
The picture's actually a lot more complex then you painted.
