When it comes to building nimble wealth for the future, equities is where it’s at. I interviewed Lars Kroijer about this subject on my podcast, episode 317. Have a listen to that, and read his book ‘Investing Demystified’. He presents a compelling argument for equities being the focus of your investing for the future.
When you invest in equities, you are investing in the great companies of the world. Capitalism is the best system that we as humans have evolved to make money from over time, and as long as we are buying and selling stuff to and from each other, the value of the companies that engage in that will continue to rise.
Track Markets Using Funds, Don’t Buy Individual Shares
I believe that buying individual shares is more hassle and more risk than it is worth for most investors. Practically, you’ll be swamped with paperwork if you buy a load of individual shares and it can be hard to keep up with. The large swings in individual shares are also likely to make for an uncomfortable ride.
I always suggest that instead of choosing which shares to buy, as you probably don’t have the expertise in that, you simply buy shares as an asset class as a whole. You do this by buying index tracker funds or their closely related cousins called Exchange Traded Funds or ETFs.
These aim to follow or track the market by buying every share listed in the relevant market. So a fund that aims to track the FTSE100 index will buy all 100 or so shares in the index in the same weights as they comprise the market.
It isn’t making a decision about which of those shares might do better or worse than the others – they just buy them all. This lack of decision-making generally reduces costs (you’re not paying fund managers to make the decisions for you) and we call it ‘passive’ investing, which I’m not sure is the best term for it, really.