Sunday, April 15, 2007

Average Investors: Be Grateful for Invisible Hand

Thanks to deregulation, innovation, globalization and competition, there have been some marvelous developments in the securities industry that have significantly benefited average investors, to the point that it would be hard for investors in the 1960s to imagine.

Ben Stein writes in today's NY Times that we should be grateful for these investing innovations:

1. Deregulation of commissions, saving investors millions of dollars in commissions.

2. The rise of index funds, thanks largely to the "greatest friend the ordinary investor ever had," John C. Bogle, founder of Vanguard Funds. (You can listen to a one-hour interview with Bogle on George Mason economist Russ Roberts' Econ Talk - Professor Roberts says "he can't think of anyone whose contribution to our lives is so unappreciated.") After taxes and fees, index funds outperformed 97% of actively managed mutual funds according to one study. If you'd be happy with a LSAT, GMAT or GRE score in the 97th percentile, you should consider index funds. Vanguard currently offers 27 different index funds.

3. Easy access to foreign stocks through mutual funds, ETFs and ADRs. There are now at least 1,000 mutual funds for international stocks and bonds.

The list goes on: discount online trading, free online access to research reports, inflation-protected securities, mutual funds targeted to your retirement year (Vanguard offers 11 different target funds), etc.

Never before in history has the average investor had it better than today - there are more investment choices and lower costs than ever before.

As Ben Stein concludes, "In terms of making it much easier for the ordinary investor to get to safe retirement, the securities business is now incalculably superior to what it once was. It allows us little guys to blast profits out of the sedimentary rock of the stock markets. Let’s be grateful."

It's the invisible hand at work once again.

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