Tag Archives: sector funds

FWB TV: The Free Lunch that is Index Investing

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Screen Shot 2016-04-28 at 11.54.55 AM
Author Lars Kroijer

It’s been said that diversification is the investing equivalent of a free lunch, since it allows you to manage your risk while getting higher returns.

 The good news is that according to research, index funds and other passively managed investments like ETFs (Exchange traded funds) have diversification built in.
Yes, we’ve heard of people who were able to buy the right individual stock or sector at the right time, but they are few and far between. You can learn more about the free lunch of indexing by viewing the latest FWB video by clicking on this title: There is such thing as a free lunch and it’s called index investing.
Indexing beats picking individual stocks or sectors
The video, which runs three-and-a-half minutes, points out that using index funds to diversify equity exposure around the world is easier and more effective than attempting to pick individual stocks or even identifying promising industries.
And while it’s possible to buy the entire world’s stock market through a single fund, investors shouldn’t take that for granted. As investment author Lars Kroijer relates, 40 or 50 years ago you would have been hard pressed to be able to buy into most markets outside North America, Europe or Japan.

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How to overweight your portfolio for an oil comeback (and avoid Gambler’s Ruin)

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Oil pumps on sunset

By Jonathan Chevreau

Here’s my latest Motley Fool blog, entitled (nicely by them, I thought!) How to overweight your portfolio for an oil comeback — and avoid Gambler’s Ruin.

Gambler’s ruin is a phrase popularized by Rotman Business School finance professor Dr. Eric Kirzner and refers to having a good idea about a sector (example energy) but choosing the wrong individual stock to capitalize on it (example Enron back in the day or in the telecommunications sphere a stock like Nortel Networks). The risk reduction via diversification is the strength of specialized ETFs focused on particular sectors.

The piece explores the idea of whether Canadian investors already have sufficient exposure to oil and gas via ETFs or index mutual funds based on the broad indices.

Because the Motley Fool requires full disclosure of the individual holdings of the writer, those curious can see my personal holdings in the energy sector in the disclaimer at the end of the piece. As per the full article, there will of course be more exposure to the energy sector via the broad ETFs.