The investing world has been inundated with the phrase “investing for the long term.”
But a new study has found that it is far from the right way to spend your retirement.
Investors should consider investing in “non-standard” investments, according to the research group Vanguard.
“There’s no such thing as a stock-index mutual fund,” the study states.
“Most investors are better served by investing in a variety of different investments that offer diversification and provide greater opportunity than a single stock fund.”
The study suggests that “the average retirement portfolio should consist of approximately three stock indexes, with the majority of the investments being high-quality low-cost index funds.”
While the report points out that many of these funds have some advantages over traditional mutual funds, it also suggests that they are often not designed with the same level of diversification.
According to the study, a single low-fee, index-like mutual fund is not the best investment for the average investor, who may not have a good handle on what they should be doing with their retirement.
Instead, a portfolio of index-oriented funds should be considered for those who need to make sure that their investments offer a strong return.
For example, the Vanguard study suggests “investors who have limited time and money should invest in mutual funds that have a higher average return.”
Investment advisor, David C. Jones, told Forbes that the study is not a comprehensive review of the topic, but it does offer some insight into the investment landscape.
In a press release, Jones said: “There is an important distinction between investing in non-standard or low-risk, low-return investment options.
The most commonly-used non-index funds are typically higher-cost funds, which offer lower risk and higher returns.”
Jones says that investors should look for the following characteristics of non-stock funds: They’re not index-based or ETF-like; They’re high-yield and low-growth; and They have low transaction fees.
Jones also advises investors to choose a low-yielding fund.
He says the biggest reason that most investors don’t make these investments is because they are not prepared for the challenges associated with an investment in these types of funds.
Jones adds that the best way to learn about these funds is to look at their performance over time, which will help investors make decisions about whether to invest in a fund that will be better for their long-term goals.
The study found that the average portfolio should have around three index funds, with most of the investment choices being high quality low-price index funds.