I'm lucky. I have some spare cash that I can invest. Where should it go? Conventional wisdom says that if I will not need to use it soon, or in a hurry, better returns are to be made in stocks and shares rather than relying on the miserably poor rates available from cash deposits.
The next question is "Do I stock pick myself, or rely on a number of funds?". Apart from a few stars the history of stock pickers is not great; and anyway, I really don't have the time to do the necessary research. So funds it is.
But should one pick active or passive funds? Index trackers are fine, and they're cheap (most of them!). However, I have a predilection for income over growth so may be active funds are the route to take.
It all sound logical, doesn't it? Unfortunately I've been reading about algorithmic trading and it's scary. Most index trackers are algorithmic - there's no need to do anything else except just react to the market; in other words, to what a few stock pickers and those active funds are doing. The first issue is that there is more and more invested in passive funds while active funds are shrinking. That means that markets are being driven by fewer and fewer funds.
That's not a problem, is it? After all, active funds have sensible, pragmatic people at the helm, don't they? Well, actually, no, they don't. Most active funds are also algorithm driven and although each individual algorithm may be understandable the way they interact with each other is totally opaque.
Can we trust these algorithms? Who knows? There certainly have been unexplained "blips" when markets have done really strange things. There are now siren voices calling for markets to be regulated back to a low complexity environment but is that really possible?
Meanwhile I'm just hanging in there and hoping. Since the 2008 crash markets have been steadily rising. Maybe the machines have got it right; or maybe it's yet another bubble. Fingers crossed!
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