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30 reasons to fall in love with index funds
Old 06-05-2014, 06:39 AM   #1
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30 reasons to fall in love with index funds

Although I don't own them , I think this is an excellent list of why investing in index funds makes a lot of sense. Here are the first 10 reasons:

Quote:
  1. You won't ever again have to deal with a pushy salesman or broker.
  2. Your long-term results are likely to put you ahead of 90% of other investors.
  3. Never again will you have to decide whether to hire or fire a manager.
  4. You don't have to monitor a fund manager's performance.
  5. You don't have to fall in and out of "love" with any individual stocks.
  6. What's going on inside the fund is simple and transparent.
  7. Your expenses will be among the lowest of all funds, leaving more of the portfolio's return for you.
  8. Your capital gains taxes will likely be lower, leaving more for you.
  9. The greater diversification in index funds reduces your risk.
  10. With an index fund, you know exactly what you're getting. You won't have to beware of any "style drift" to throw off your asset allocation. Often this drift seems inevitable in actively managed funds as they grow larger.
The other 20 reasons and the full article can be found here: 30 reasons to fall in love with index funds
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Old 06-05-2014, 07:29 AM   #2
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Thanks for sharing this article! A large portion of our portfolio is in index funds. Love the low expenses and as the article points out, they are relatively simple to select and monitor. They have served us well for decades.
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Old 06-05-2014, 09:58 AM   #3
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You had me by #2

You don't have any index funds at all? I know you've mentioned the two W's, but is that it?

While I can understand the attraction of those two, I guess I still would want some diversification from a couple managed funds. Even though they have 'earned their stripes', I just can't help but think that their management could go out of whack at some point, and their management approaches are probably pretty similar (within their stated guidelines).

Maybe an asteroid strike is more likely though, but I guess I still would think some % in indexes would be prudent. But that's just me.

-ERD50
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Old 06-05-2014, 10:14 AM   #4
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I'm happy with the AA resulting from a mix of the two W's.

Damn the asteroids, full speed ahead!
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Old 06-05-2014, 10:16 AM   #5
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But, but, but the W funds are not index funds. Their managers have explicitly said so, and emphasize that they are stock pickers.
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Old 06-05-2014, 10:20 AM   #6
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+1

And they are far better at it than I am!
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Old 06-05-2014, 10:23 AM   #7
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So, index funds are for the birds, while we either pick our own stocks, or go with those who can?
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Old 06-05-2014, 10:28 AM   #8
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I have both active and indexed.

I also liked both Ginger and Mary Ann.
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Old 06-05-2014, 10:46 AM   #9
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Well index funds may have to pay licensing fees which kinda sucks but is not that bad. As far as I could tell, for example, Vanguard's fees it used to pay to MSCI was only on the order of 0.5 basis points.
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Old 06-05-2014, 11:10 AM   #10
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I do not know about lovin' any index. Does it love me back? Indices are defined by some committees anyway, not by God. After a stock has been up, they add it to their index. If a stock goes down, they kick it out. Alcoa (symbol AA) was kicked out of the DJ Industrial in Sep 2013. Looks how it has been doing (nearly doubled!).

All I want is money. If it makes me money, I want it. All I love is money.

So what if the W fund managers pick stocks to have good returns, or do it by hook and crook? I may buy some more one of these days, when I get tired of doing my own slicing and dicing.
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Old 06-05-2014, 11:34 AM   #11
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I have two Index's in my TSP, C and S. I also have the W's in my Roth IRA. This will not be my sole source of FIRE income. FERs, which I could live on, will make up around 50% of my FIRE income. I am very comfortable with this mix.
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Old 06-05-2014, 11:41 AM   #12
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Seriously, index funds are not all bad. They provide an investor with diversification, low fees, and a low turnover despite the occasional throwing out some stocks that turn cold and adding more recent hot stocks.

If buying an index fund keeps an investor from chasing hot stocks, or sectors, or indirectly via an MF that chases hot stocks, then it is good. But I will stop short of saying that it is the only way to invest, which is similar to saying that one must go to church every weekend in order to not commit murders and rapes.
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Old 06-05-2014, 11:55 AM   #13
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IMHO the two most important aspects of investing are diversification and low expenses. Index funds do that automatically but both can be addressed outside of index funds as well. About half our financial assets are in index funds/ETFs, have some of the Ws, some dividend stocks and various forms of fixed income (REITs, stable value fund, ibonds, foreign bonds).

Perhaps the greatest advantage of index funds are their simplicity. Told DW to put all the stocks into a total market index fund or Wellesley. I don't think she could sustain an interest in managing more than 3 funds, one would be preferable.
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Old 06-05-2014, 02:04 PM   #14
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We own 100% index funds and sleep very well at night. Our main holdings are the Vanguard Total US Stock Market, Vanguard International Stock Market, and Vanguard Total Bond Market.
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Old 06-05-2014, 02:54 PM   #15
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Reason number 1 to not love index funds: 20-year-old FOREX traders will mock you for being satisfied with mediocrity.
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Old 06-05-2014, 03:31 PM   #16
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Quote:
Originally Posted by steelyman View Post
I have both active and indexed.

I also liked both Ginger and Mary Ann.
+1
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Old 06-05-2014, 03:38 PM   #17
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I love index funds, for all the reasons listed, especially #7, 8, and 9.

I also love Wellesley! I have been following Wellesley since before I had any money to invest. So, I have 30% Wellesley, and the rest is index funds. Hopefully that covers all bets.
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Old 06-05-2014, 03:43 PM   #18
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Quote:
Originally Posted by NW-Bound View Post
So, index funds are for the birds, while we either pick our own stocks, or go with those who can?
Your words, not mine.

I owned index funds during the accumulation phase but now that I'm retired and "decumulating" their lack of income generation is a negative - at least for me. Plus, I'm trying to set up my investments so that they are on autopilot as I age. The fewer decisions I have to make the fewer opportunities I'll have to screw up. Balanced funds like W&W go a long way in helping me achieve that hands-off goal.
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Old 06-05-2014, 03:44 PM   #19
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...Hopefully that covers all bets.
I dunno. Some will say that covering all bets require you to have a Forex account too.

There are many bets I do not make, because I am not knowledgeable, or because I am chicken, or I just do not think they are necessary.
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Old 06-05-2014, 03:48 PM   #20
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Quote:
Originally Posted by REWahoo View Post
Your words, not mine.

I owned index funds during the accumulation phase but now that I'm retired and "decumulating" their lack of income generation is a negative - at least for me. Plus, I'm trying to set up my investments so that they are on autopilot as I age. The fewer decisions I have to make the fewer opportunities I'll have to screw up. Balanced funds like W&W go a long way in helping me achieve that hands-off goal.
I think we both agree that there are many ways to skin a cat. Successfully I mean.

And then there are people who refuse to "skin this cat". They only buy CDs or annuities.
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