http://www.sensibleinvesting.tv
Part 5 of an eight-part series on the lessons to learn from stock market history looks into why complex investment products should generally be avoided. Instead, investors should try to keep things simple, and the simplest way to invest in equities is via index funds.
Presented by Robin Powell. Expert analysis from Janette Rutterford, Richard Wood, Dave Plecha, Jasmine Birtles, John Bogle and Mike Tubbs.
Welcome back to the series that aims to give you - the investor - the key lessons to learn from hundreds of years of global market history.
So far we've discussed the need to be realistic, to stay calm and to forget trying to time the market.
The next lesson is to keep it simple.
The rules of sensible investing are, in fact, relatively simple. Unfortunately, the investment industry seems to prefer complexity.
Twice in recent history, that complexity has sent markets tumbling.
But of course the lessons of market history often go unlearned and, just 20 years later came another crash - largely caused by investments that were so complex that not even the professionals understood them.
Yet still there are some who just don't get it. Even after what happened in 1987, and again in the Credit Crunch, the industry continues to peddle complex investments - and investors continue to buy them.
So, what's answer?
For a start, stick to what you understand.
If you want to invest in shares, invest in shares. The same with bonds and cash. Products which combine different assets should generally be avoided.
Of course, there are so many different types of shares you can buy. There are growth shares and shares for dividend income. There are shares from different sectors of the economy and different part of the world.
The simplest way of gaining exposure to shares is to invest in the entire market market - a strategy known as passive investing.
But simplicity is just one of the advantages of the passive approach. It also provides greater diversification. But the biggest benefit is that it's far cheaper in the long run than paying an active fund manager to buy and sell shares on your behalf.
If you're new to the idea of passive investing, you'll find plenty more information about it in the videos on our website and our YouTube channel. We'll bring you another key lesson to learn from market history in Part 6.
http://www.sensibleinvesting.tv
