Lately I have been questioning my investing strategy. Up until now I have been following Dave Ramsey’s advice by investing in mutual funds. This has worked well, but I am wondering if there is a smarter way.
A key idea in investing is that the investor should always understand what they are investing in. So the question to myself is: do I understand mutual funds? I understand the mechanics of a mutual fund, but do I understand what the fund is investing in? I’m not confident that I do.
If I had cash in hand and wanted to invest in a company, I would want to know as much about it as possible. I would talk with the owner and learn the ins and outs of the business. I cannot do this with a mutual find. First, there is only a limited amount of information on the company and I cannot talk to the people running it. Second, even if I had access to all the company’s internal information, there are so many companies in the fund I could never be able to keep up with all of them. Third, if I was investing in only one company I am not confident that I would know what to look for. Fourth, there are a lot of steps between my investment in a company, through a mutual fund, and me which adds complication. Fifth, I do not know what is going on in the minds of the investing managers.
Because of this, I have started thinking about stuff I understand or can understand with a little education. Real estate comes to mind. Yes, I know that there are a lot of negatives recently with real estate, but if I move in that direction I would learn as much as possible and avoid going “all in” for the investment. Plus, real estate is something tangible which I can describe how it works on the back of a napkin.
At this point I am not ready to take action on these questions but maybe in the future.
Have you ever questioned your investing strategy?