When financial planners are asked at parties about what they do for a living, many hesitate to be specific because the inevitable follow-up question relates to where they think the stock market, the currency, interest rates or the economy are heading.
Ever been on holiday where the weather wrongfooted you? The brochures promised tropical bliss, so you packed accordingly. Instead, you are greeted by bone-chilling wind and rain. Shivering and exposed, you resemble an undiversified investor.
Having a financial plan is imperative not because our lives are ordered, structured and predictable, but because they are not. The truth of that statement, sometimes elusive during periods of plenty, has never been more evident than in recent months.
The economics professor had a problem. Or rather his students had a problem. Despite their best efforts on a test he had set for them, the students were still averaging only 72 out of a possible 100. Faced with a mass revolt, the professor had a brilliant idea.
The power of passive investing is that it gives you cheap and efficient access to the market. It does this by tracking the performance of an index. But how exactly does this work?
We live in a world where a lot of things are judged on relative performance and this carries over into business, as well.