What is the role of a fund manager? Who needs a fund manager? An introduction

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Index funds and the ABC of long-term investing

The above two interrelated terms form the foundation of an investment strategy that is rapidly gaining popularityall over the world. According to leading international analysis centres, passive, index-based investing is the most profitable option for most investors in the long term.

Index funds have now finally gained the attention of the pension fund managers of Estonian-based banks – largely due to the interest shown by the members of Tuleva. Unfortunately, the banks’ fund managers and marketing staff often use faulty logic when discussing index funds, whether out of ignorance or bias.

Please allow me to provide you with a few tools for identifying such fallacies. For this purpose, I present – right here in the Tuleva blog – a series of articles aimed at explaining the principles of passive investing, divided into a total on nine chapters.

I have also established a few ground rules for these articles.

1: I will try to avoid financial jargon insofar as humanly possible.

2: I do trust the interested readers to be reasonably intelligent and literate, but I do not expect them to be proficient in mathematics or investing.

3: I will try to be as brief as possible, but as specific as necessary. Since you happened to visit the Tuleva blog, I will assume that you have no interest in fancy populist slogans, but would rather give these issues some thought yourself.

4: I will be honest. I can tell you straight away that I have been convinced by the many studies concluding that passive index-based investing is the smartest way for most people to generate long-term yield on their savings. I will explain my conviction in these articles.

Table of contents

  1. Chapter One: Why does Warren Buffett advise his heirs to place their savings in index funds?
  2. Chapter Two: Three things you should know about the motivation of fund managers
  3. Chapter Three: Why the net asset value of a pension fund unit does not reflect your yield
  4. Chapter Four: Are index funds riskier than managed funds?
  5. Bonus chapter: Are index funds threatening the health of the world’s securities markets?

Subsequent chapters will be published over the coming months. You are also welcome to visit our Facebook page!

Please do not hesitate to contact me, if something remains unclear, or if you disagree with a certain aspect, or agree with me but have suggestions with regard to matters deserving further specification or attention: tonu.pekk(at)tuleva.ee.

It only takes a few minutes to transfer your pension to Tuleva. You do not have to be a member of Tuleva to transfer your pension, and changing funds doesn’t cost anything, you will be saving money on management fees instead! We have prepared a guide to help you out here: