The world of investment is littered with jargon that throws off anyone who’s not a part of it. However, even in the midst of all that, some things are palatable to the general public. For example, even the average joe on the street knows that the Global Financial crisis of 2009 sent the markets into turmoil, bankrupting institutions, putting people out of jobs, and generally bringing forth the bad times.
However, there are some shocking things that most investors know (or probably don’t) and to the average person, these facts remain unknown. Well, buckle down as we reveal 7 shocking facts about investing. that will blow your mind:
Index investing beats most portfolio and hedge funds managers
If you’ve ever taken a peek at investing, you are probably familiar with hedge funds and investment portfolios. The thing is, these funds are managed by professionals who’ve studied market trends and know where to invest the money to earn the highest returns, right? But then comes index funds. The shocking truth is that index funds (passive funds) regularly trump hedge funds (actively managed funds) after deducting taxes and fees.
In fact, Warren Buffet, in 2006 bet that he would pick an index fund would beat any hedge fund manager. He picked Vanguard and his competitor picked Protégé Partners. As of now, guess who’s winning? (Hint: Buffet)
Women are more conservative investors than men
We don’t want to start a feminist parade here but, on average, it is a fact that men are more aggressive investors than men. They end up getting higher returns than women. Perhaps it has to do with the fact that there are fewer women investors. Something needs to be done about that.
Since the 19th century, the US stock market has grown 28000-fold
A research group in 2013 discovered that there were around 16 people born in the 1800s that were still alive. By the group’s calculations, the US stocks had grown 28000 times during the lifetimes of the 16 lucky people. That includes reinvested dividends.
The best returns on stocks are made when the market is in doom and gloom
There’s no better way to describe the phenomenon than using the dramatic words “doom and gloom.” This is a time when the economy is in utter shambles. Ironically (or not, to the nuanced investors), the best time for people to own stocks, historically, was during the Great Depression. Guess when the next best time was? That’s right, the few years succeeding the Financial Crisis of 2009. It has to do with the bigger growth potentials occasioned by the prices being so low.
A majority of the active traders make the lowest returns
To the average person, the perception is that active traders make the most money. However, between 1992 and 2006, more than two-thirds of active investors lost money. About 1% of them made profits. The big lesson here is that you should invest passively and be more patient.
The United States of America generates more than 20% of the world’s GD
More surprisingly, this wealth is generated by about 4% of the global population. That’s a massive disparity that needs to be rectified.
The Dow Jones Industrial Average (DJIA) almost fell in 1979
The DJIA was limping at 800 in 1979 prompting “Business Week” magazine to predict that it was headed for total decline. The headline read “The Death of Equities”. As of this year (2018), the DJIA is hovering at over 20,000. Not too shabby for a fund that was dying.
The markets are beautiful for their inconsistencies, unpredictability (sometimes) and relative predictability (sometimes with careful study). More people need to take part and enjoy the highs and lows – more highs, we hope. Nevertheless, before they take the plunge, they should learn a few things. This is a good place to start.