Own Your Financial Freedom by Kennedy Andrea;

Author:Kennedy, Andrea;
Language: eng
Format: epub
Publisher: Marshall Cavendish International (Asia) Private Limited

Even better than the low-cost aspect of passive index funds and many ETFs is the fact that they outperform actively managed funds more often than not. So as counter-intuitive as it sounds, you are often going to pay less and get more if you use passive index funds to invest in financial markets rather than paying extra for actively managed funds.

Some actively managed funds have their purpose, and many will have their day in the sun. However, for consistent long-term returns in liquid and open stock markets such as Singapore, Hong Kong and the United States, low-cost passive stock index funds or ETFs often prove to be the best value for money. Ultimately though, I believe it is the psychological benefits that draw investors to passive index funds, namely the feeling that you are following the market and, as a result, you’re doing just as well as everyone else.

THE PROS AND CONS OF OWNING STOCKS

The main advantages of owning stocks are as follows:

• Like property, stock market returns tend to keep pace with inflation.

• In Hong Kong and Singapore, you can enjoy tax-free capital gains, meaning no tax on the money you make!

• In Hong Kong and Singapore, you can enjoy tax-free dividends, meaning no tax on the dividend payments you earn!

• You can reinvest your dividends.

• Dividends also can grow, and appreciate, thus giving you extra compounding of interest over time.

• Most stock market investments are easy to sell quickly if you have to do so.

The main disadvantages of owning stocks are as follows:

• Stock market investments are generally more volatile than bond investments.

• You can lose your entire investment if the company you buy shares in goes bankrupt (look at Enron, WorldCom and Lehman Brothers).

• Companies that behave badly issue too many shares and, just like governments printing more money, dilute the value of the shares that are outstanding.

• Dividends are not a sure bet because companies can cut or suspend them at any time.

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