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Investment adviser converts to index investing

Benjamin Felix, 26

Occupation

Investment adviser

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The portfolio

Index funds and exchange-traded funds from the Vanguard, iShares, BMO and other families.

The investor

Last year, Benjamin Felix began selling mutual funds. His own portfolio was in mutual funds too. But that all changed after he appeared in a Me and My Money column in May, 2013. "I discovered index investing and the issues around fees after I saw the online reaction," he reports. He now works for an "index-focused investment firm."

How he invests

Mr. Felix also converted to index funds and ETFs in his portfolio. "There is a wealth of academic research and empirical evidence showing that investors are better off holding the market rather than trying to beat it."

Academic research and "years of data" also show that "within the market, small-cap and value stocks have higher expected returns than the broad market," adds Mr. Felix. Thus, he supplements his portfolio of main indexes with those that specifically track these asset classes. "By taking the market portfolio and tilting it to increase the proportion of small-cap and value stocks, I position my portfolio to outperform the index without trying to pick winning stocks."

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He makes sure his portfolio is diversified globally and rebalanced regularly. This lowers volatility and keeps portfolio allocations in line with risk preferences. For example, his position in U.S. stocks had grown relatively large due to some strong price gains, so he sold some off to bring its weight back down to target.

Best move

"Ditching expensive mutual funds and building a low-cost globally diversified portfolio."

Worst move

"I spent years chasing performance in actively managed mutual funds."

Advice

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"You can save on the cost of advice and use online services like Tangerine investment funds [formerly ING Direct Streetwise] or TD e-series funds. If you decide to work with a professional it is important to know how they are paid … and what qualifies them to give you advice." More advice is available at benjaminwfelix.com.

Want to share your strategies? E-mail mccolumn@yahoo.com

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