In a recent article published in Alan Kohler's Eureka Report, financial education consultant Scott Francis responds to Alan Kohler's recent article that suggests we are in a stock picker's market and should shun an index approach.
Scott reminds readers of the following points supported by well regarded academic research:
Stock picking rarely works
Little evidence of skillful investing
Everyone thinks they can be above average but this is mathematically impossible
Index funds are not perfect. Any discussion of investment approaches that considers the pros and cons of using index funds is really looking at whether a market participant has the skill to beat the market or should settle for the average market return.
My opinion is that there are strategies well worth considering beyond simple index funds (including exposure to small companies, value companies, a careful asset allocation including bonds and cash). Index funds do, however, remain a reasonable way to exposure investment capital to markets.
Indeed, if I was told that my investment future was restricted to only being able to use a good quality cash account and a low-cost Australian share index fund in my portfolio I could comfortably cope with that.
To take a look at the full article please click on the following link - Should you follow the index?