An investor’s life on Mars

A Martian called Zog visits Earth to see what it can offer in the way of the latest investment funds. He meets an independent financial adviser called Charlie who asks him what kind of investment he’s looking for.

‘I’ve been reading about funds of funds,’ says Zog. ‘They sound good. You get access to a range of managers, each of whom invests in a different style. So if some of them aren’t performing well at any time, the others might be. Overall, you increase your chances of making money. And by spreading your money across several funds, you reduce the risk of losing all your money if something goes wrong with one particular fund.’

‘I don’t like funds of funds at all,’ Charlie snorts. ‘Too expensive. What you want is a tracker fund. They’re brilliant — particularly because they’re cheap, probably the lowest fees of all the funds you can buy. A tracker fund buys all the stocks in a stockmarket index, in the right proportions. The fund behaves just like the index. If the index goes up by 10 per cent, so does the tracker fund.’

‘And the other way round?’ asks Zog. ‘If the market drops by 10 per cent, so does your tracker fund — I suppose.’

‘Well, yes,’ says Charlie dismissively, ‘but that doesn’t happen often.’

‘You’re the expert, of course,’ says Zog, who’s done his homework. ‘But the market did fall by 25 per cent in a day — didn’t it — back in 1987?’

‘Just a one-off.’

‘And in the early 1970s it fell by much more than that, and took years to recover. And the Japanese market in 1990 fell by nearly three quarters, and still hasn’t recovered.’

‘Your point being?’