The Financial Sector $-$ End of Chapter Problem

Your friend just received a promotion and wants to invest the extra annual income from her raise. She tells you that she is thinking of hiring a fund manager, saying: "The fee is only $1\mathrm{.}1\%,$ and this stock picker has a great track record!"

a$.$ What advice would you give your friend?

Investing just your extra income probably won't be enough to get a good return.

You can usually negotiate those fees down or deduct them from your taxes.

Past performance is no guarantee of future performance, and minimize paying fees for "expertise".

It's better to just keep your money saved in a bank. Investing your money just doesn't have high enough rewards.

b$.$ Following the lessons of personal finance, most economists would advise your friend to

keep your money moving by buying and selling stocks frequently.

pick the stocks from companies you buy products from.

put all of your money into a single investment, like real estate or tech stocks.

invest in low$-$cost index funds.