I know what youre probably thinking: How to invest money like a pension manager? Why would I do that?

Because pension managers win. Among all long-term investors, its really only the pension managers who understand the risks.

Thats because they have a very serious duty to fulfill — the retirement obligations of thousands and perhaps millions. The room for error is zero.

Lets consider the alternatives. Say you had to pick a money manager today, right now. Your choices are:

1. A group of mutual fund managers

2. A hedge fund or two

3. A broker

4. An insurance agent

5. Yourself, acting alone

If you go with door No. 1, the problem is going to be fund fees  and underperformance. Most active funds take more than 1% of your money (some much more) and extremely few beat their benchmarks. Those who do cannot do so with anything approaching predictable consistency. So scratch that.

Behind door No. 2 — hedge funds — sits a 2% fee and 20% of your gains going straight to the managers. Great if they outperform, but the track record is hazy at best. A few hedge funds  excel and the rest struggle to come anywhere near the benchmarks.

Fees are the problem at the hedge funds, but so is the slugger mentality. If you always swing for the fences, youre going to pile up a lot of strikes in the process.

Ah, your broker, door No. 3. Fred, or Gary, or whatever his name is. Nice guy, really works hard on your behalf. Except he doesnt. Hes working toward a sales quota.

By regulation, brokers  are under no obligation to steer you toward investment products that serve you. They might, but its their choice. They need only be consistent with your risk tolerance. If he gets a fat commission out of it, well, why would you have to know that? You dont.

Door No. 4 is your insurance agent. Its technically possible that there exists an annuity  out there, somewhere, that is in your interest to own, but its a diminishing likelihood. Remember, the insurance company needs to make money. Then the agent gets a cut. Then you get paid an income.

This entire pie starts out using the same active fund managers  behind Door No. 1, so you start the race crawling, 20 yards behind the line.

How to invest money right

So that leaves you, acting by yourself. Can you learn how to invest money like a pension manager? Sure.

It only takes a few minutes to build a solid portfolio of commission-free index ETFs. From there, you need only to rebalance it on occasion and enjoy the rock-bottom fees offered by exchange-traded funds.

Risk is managed by prudently tracking the mix of asset classes in index funds. not by attempting to pick stocks. You can be your own pension manager and spend just a few hours a year doing it, just by changing your approach to the retirement problem.

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