Lessons on Investment Choices

CMO, CDO, CDS, ARS. Confused? Well, you are not the only one. These are just some of the "engineered" products firms on Wall Street produced to help put the economy in its current doldrums. They also caused many investors portfolios to explode and suffer huge losses. Instead of investing in complex investments which have no history, stick with the following:

• Buy from established, well regarded fund companies - Vanguard and iShares are two of the biggest in the industry with sound reputations. 
• Buy passive index mutual funds or Exchange Traded Funds (ETF) - Index funds over low cost investing and perform better than 80% of actively managed mutual funds.
• Stay Diversified - Do not look for the hot stock, sector, or country. Broad diversification amongst Growth, Value, U.S., Euro/Pacific, Emerging Markets, and a couple others will serve you well.
• Keep costs low - Index funds charge investors the least amount while actively managed funds charge the most. What do you get when compared to index funds for the extra cost: underperformance, higher taxes, and less transparency, less money for you. Vanguard Large Cap Value ETF (VTV) charges 0.10% while American Funds Value Fund (AMECX) charges 0.58% plus 5.75% upfront sales charge. Excluding costs, over the past 5 years VTV performed 1% better than AMECX.