Investment Gurus

The Major Types of Investment Advisors

Common stocks are the best investment over time. Since the early 1920s, they have performed better than any other type of asset. But with stocks, or any other investment choice, weigh risk relative to return. Nobel prize-winning investment guru, Professor William Sharpe, has developed the "Sharpe ratio," which measures how much extra return you gain based on the risk you are willing to take. The higher the number, the more return you are getting for the risk you are taking - no matter how high or low that risk is.

The Basic Types of Investing

When you select an investment manager, first decide on the best investment approach for you. However, look beyond the manager’s investment approach and average annual return, because that could conceal volatility. Look at how returns translate into real dollars and real earnings. Select a manager with a consistent record over time.

Be aware of the important distinction between active and passive investing. If you are an active investor, you pick stocks because you think they will perform well. Active managers seek to beat the market, either by greater returns or less risk. ...