High Return Investments

Passive management

Passive management is a strategy where a fund manager makes as few portfolio
decisions as possible in order to minimise transaction costs, including the
incidence of capital gains tax. One popular method is to mimic the
performance of a externally specified index - called 'index funds'. The
ethos of an index fund is aptly summed up in the injunction to an index fund
manager: Don't just do something, sit there!

Passive management is most common on the equity market, where index funds
track a stock market index. Today, there is a plethora of market indexes in
the world, and thousands of different index funds tracking many of them.

Rationale

Questions -- Why are index funds interesting? Why would it make sense to sit
there and do nothing? What is the empirical performance of index funds?

The rationale behind indexing stems from three concepts of financial
economics:

  1. The efficient markets hypothesis, which states that equilibrium market
     prices fully reflect all available information. It is widely
     interpreted as suggesting that it is impossible to systematically "beat
     the market" through active management.
  2. The principal-agent problem: an investor (the principal) who allocates
     money to a portfolio manager (the agent) must properly give incentives
     to the manager to run the portfolio in accordance with the investor's
     risk/return appetite, and must monitor the manager's performance.
  3. The capital asset pricing model (CAPM) and related portfolio separation
     theorems, which imply that, in equilibrium, all investors will hold a
     mixture of the market portfolio and a riskless asset. That is, under
     suitable conditions, a fund indexed to "the market" is the only fund
     investors need.

The bull market of the 1990s helped spur the phenomenal growth in indexing
observed over that decade. Investors were able to achieve desired absolute
returns simply by investing in portfolios benchmarked to broad-based market
indices such as the S&P 500, Russell 3000, and Wilshire 5000.

In the US, indexed funds have outperformed the majority of active managers,
especially as the fees they charge are very much lower than active managers.
They are also able to have significantly greater after-tax returns.

Implementation

At the simplest, an index fund is implemented by purchasing securities in
the same proportion as in the market index.

Investment FreshNews:

Personal Finance Daily: The week's 10 best Personal Finance stories: Sept. 1-5 (Market Watch)
Sat, 06 Sep 2008 12:25:14 GMT
In case you missed them, here are the top 10 Personal Finance stories from MarketWatch for the week of Sept. 1-5:

Citigroup: The Bad Boy of Finance (Washington Post)
Sat, 06 Sep 2008 01:12:04 GMT
Citigroup has looked like an octopus in a minefield lately. The world's largest bank measured by revenues, Citigroup (symbol C ) is involved in every aspect of finance you could name -- and appears to have made big mistakes in most of them. The company has written off and lost $53.6 billion through the credit crunch so far, which is more than any other bank or broker.

Heat on car finance firm (The New Zealand Herald)
Sat, 06 Sep 2008 16:53:07 GMT
A second-hand car finance firm that collapsed owing $25 million to investors is the subject of an official inquiry.

Author ready to amend article on finance panel (Gloucester Daily Times)
Sat, 06 Sep 2008 10:22:13 GMT
ROCKPORT and mdash; The author of the only petition article appearing on the fall Town Meeting warrant says he'll amend his proposal from the podium Monday night. As written, the Article J petition, penned by Charles Francis, calls for a bylaw change in the appointment authority for the Finance Committee from selectmen to the moderator. After hearing concerns from many, including Town Moderator ...

China's sudden collapse: corruption, finance, trade, outsourcing, politics, law, society (cmi valparaíso)
Sat, 06 Sep 2008 10:01:37 GMT
What is really inside Chinese government and society? Is China about to go burst or rising higher? Is a runaway government corruption destroying Chinese economy and peace? What is really behind Chinese finance, politics, trade, politics and society?

Investment Resources: