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OK this has nothing to do with helis. Except it's about money we're [I]not [/I]spending on helis :)
Funds are a form of investment - you buy them from a bank, and sell them later at a (hopefully) higher price. Banks usually offer quite many of them to choose from.
Sounds straightforward. But there's a catch:
When faced with the list of funds to choose from, most people look at how they performed in the past. Usually it looks quite rosy - most of them earn in average clearly more than a bank account would.
[B]What Joe Average doesn't know [/B]is that the banks don't let the worst performers survive. The rotten tomatoes are merged into another well-performing product.
In other words, by looking at the past performance you will always [B]underestimate risk [/B]because the worst offenders have been zapped from the list.
It's pretty clever - those products with an outstanding performance are always spotted easily, while those that performed abysmally disappear into the average. No mention, that some individuals lost 30, 50 or 80 % of their hard-earned money.
Knowing that, there's nothing inherently wrong with investing in funds as such (the first thing to look out for are excessive fees). Only, the data presented on a bank's webpage is biased and leads most people to bad decisions.
Funds are a form of investment - you buy them from a bank, and sell them later at a (hopefully) higher price. Banks usually offer quite many of them to choose from.
Sounds straightforward. But there's a catch:
When faced with the list of funds to choose from, most people look at how they performed in the past. Usually it looks quite rosy - most of them earn in average clearly more than a bank account would.
[B]What Joe Average doesn't know [/B]is that the banks don't let the worst performers survive. The rotten tomatoes are merged into another well-performing product.
In other words, by looking at the past performance you will always [B]underestimate risk [/B]because the worst offenders have been zapped from the list.
It's pretty clever - those products with an outstanding performance are always spotted easily, while those that performed abysmally disappear into the average. No mention, that some individuals lost 30, 50 or 80 % of their hard-earned money.
Knowing that, there's nothing inherently wrong with investing in funds as such (the first thing to look out for are excessive fees). Only, the data presented on a bank's webpage is biased and leads most people to bad decisions.
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