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Re: 4% of what?
Old 03-27-2005, 08:20 AM   #101
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Re: 4% of what?

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To a close approximation I think it still is in most circles (perhaps 55) but this "community" skews ones perspective.


I agree to a degree with this. *There are very few people who have a hope of really retiring early. *For the bulk of the population much below 55 is a pipe dream. *If you have the right combination of high income, low expenses, and an early start on the plan then it is possible for a small percentage. *What cuts that number even more is that very few people earning multiple $100Ks per year want to give that up and all the consumer toys to live on $40K to $60K per year (e.g. the somewhat recent Azanon thread).

Not to speak ill of the banned but one of the other views of h@cus that was incomprehensible was that everybody should be able to FIRE and that if they only were told about it they would rise up and quit their jobs.
Hyper,

You make some cool points.

In regular society where people are mostly chasing material things as a distraction from work, FIRE is impossible, also FI. It only really works if you are willing to reduce your expenses by carefully examining what you get the most bang-for-the-buck from, doing that and saving like crazy with the rest. Boosting income helps too but that is only part of it. The less you need to run your life, the less you need to FIRE. Large salaries doesn't get around this point if you spend most of it, you just need so much more to FIRE at the same standard of living. I do think this is more key. For others they'll be requiring $2m, $4m and so on which really is almost impossible even on larger salaries.

If you're willing to relocate it can change things too. I read that there are still cheaper locations in the US to move to in order to retire that have pleasant weather, lower utils costs and so forth. If someone in the UK is willing move to a cheaper country (we don't call the place "rip-off Britain" for nothing!), then this can change the amount you need. Many back home will scoff at the idea however but a willingness to travel and live in different countries can make a world of difference to how much one needs to FIRE.

All that aside, I agree that it is for a small minority who can retire early. I do think though that for the general population one should not rely on SS being there in 20 years time - or as a fallback half what the payout is today - and so saving is very important. It is still worthwhile even if you cannot retire until you reach 65. I think h@cus's issue with that suggestion is that most will not be sufficiently motivated for a goal that is 20-30 years away and people are still fairly young. The desire to consume and the pressing need of home, partner, kids, etc., will be too great. Only if it is 15 years or less will it be something that has a light at the end of the tunnel sufficient to drive towards it. I think this goes to what h@cus's aim was on early retirement, however practical or impractical an idea it might be.

Petey

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Re: 4% of what?
Old 03-27-2005, 09:23 AM   #102
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Re: 4% of what?

Petey; nobody attacks diff. view points on the 4% rule. It was your tone that attracted the wrath . Sound to me like you feel a bit better now. Cheers!
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Re: 4% of what?
Old 03-27-2005, 09:47 AM   #103
 
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Re: 4% of what?

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IMO,some SWR discussions are being held by people who are already in the belly of the whale but just don't know it yet.

Mikey
Mikey,

Not sure what you meant by this Mikey? - Most of the young folks on this forum have quite a bit of assets, are still working, and plan to have quite a pile before pulling the plug.

I think anyone that is capable of having an SWR discussion, has their finances under control and is way out front of 95% of the U.S. Population. Everyone has their own path to financial security. I have not seen any plan on this forum that is not workable yet. We all have our Aces in the Hole, should market returns be flat for the next 10,20,30 years. Reverse Mortgages, Cutting budgets, Social Security (heck my wife and I's SS could be as much as $40K a year!) etc. etc. And there is my ultimate fall back plan that I call - Trout Bum in a Trailer!

What bothers me most, is that some folks are worrying about investing, market returns, switching portfoilos on a daily basis. They aren't retired either! - They have a Full Time Job managing their Investments! - One that I would never want!
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Re: 4% of what?
Old 03-27-2005, 09:57 AM   #104
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Re: 4% of what?

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Petey; nobody attacks diff. view points on the 4% rule. It was your tone that attracted the wrath . Sound to me like you feel a bit better now. Cheers!
You got it right Ben. I dont know where he gets the 'attack the anti-4%'ers'. Curiously, the tone of his argument is that anyone who believes in the 4% SWR is a dummy. I guess attacking is ok if you believe Peteys 'facts' but not ok if you dont.

I havent seen ANYONE attacked for coming up with an alternative strategy for the 4% SWR idea. I did see a troll 'get the business', but he had no alternative and wasnt really interested in the SWR discussion, rather a big to-do about death threats, DCM's and board disruption.

And I'll say again...I know from other places that Petey's thing is 'indexers are idiots', managed funds are the way to go, and a US-centric portfolio are the kiss of death. Hmm...well, if you like 'facts' there are a lot of them that disagree with that.

All that having been said, most of my money is in managed funds (albeit very cheap ones - wellesley and wellington), I dont think indexes will do well over the next 5-10 years, most of my holdings are in bonds and value stocks, and I own an awful lot of asset classes besides US stocks and bonds.

My personal allocations aside, historically the '4% solution' worked fine. Theres nothing in our "valuations" by most common methods that differs from valuations at certain times in the past.

If you believe we're going to have an event worse than the 1929 depression and the period following it during the time you're retired, then adjust your withdrawal rates accordingly. 4% worked from 1929 to 1959 just fine. So if you believe we'll see an event 2x as bad, then drop and roll, take 2%. You'll probably die with a huge portfolio.

The flip side of this is that if we experience such an event, the cost of everything may very well drop through the floor...who could afford to buy anything with no jobs and no money? Loan defaults levels will be legendary...those of us who still have cash in hand will be able to scoop up properties for pennies on the dollar. And we'll be shoulder to shoulder with a bazillion people out of work, with no money, with huge debts, who have no idea what to do now. We'll have years of experience living without the cube farm, living on less money, many of us have no debt to service, and we'll still have a lot more money in the bank than most of our contemporaries who earn and burn.

I think we'll be ok.

Tell ya what though Petey, when PeteyCalc comes out, I'll push to have Dory put it up alongside FireCalc and I'll use it just as often to see what another potential view of my future ER will look like. So get working on it. And I do hope to continue to see more of your perspectives as you seem to me to be a smart guy. Just try to play better with others?
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Re: 4% of what?
Old 03-27-2005, 10:26 AM   #105
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Re: 4% of what?

Hi th!
As for managed vs indexed I just think that Petey changed his mind as you can see further up this thread.

As to the 4% rule (of thumb!) we agree.

Cheers!
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Re: 4% of what?
Old 03-27-2005, 10:27 AM   #106
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Re: 4% of what?

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You got it right Ben. *I dont know where he gets the 'attack the anti-4%'ers'. *Curiously, the tone of his argument is that anyone who believes in the 4% SWR is a dummy. *I guess attacking is ok if you believe Peteys 'facts' but not ok if you dont.

I havent seen ANYONE attacked for coming up with an alternative strategy for the 4% SWR idea. *I did see a troll 'get the business', but he had no alternative and wasnt really interested in the SWR discussion, rather a big to-do about death threats, DCM's and board disruption.

And I'll say again...I know from other places that Petey's thing is 'indexers are idiots', managed funds are the way to go, and a US-centric portfolio are the kiss of death. *Hmm...well, if you like 'facts' there are a lot of them that disagree with that.

All that having been said, most of my money is in managed funds (albeit very cheap ones - wellesley and wellington), I dont think indexes will do well over the next 5-10 years, most of my holdings are in bonds and value stocks, and I own an awful lot of asset classes besides US stocks and bonds.

My personal allocations aside, historically the '4% solution' worked fine. *Theres nothing in our "valuations" by most common methods that differs from valuations at certain times in the past.

If you believe we're going to have an event worse than the 1929 depression and the period following it during the time you're retired, then adjust your withdrawal rates accordingly. *4% worked from 1929 to 1959 just fine. *So if you believe we'll see an event 2x as bad, then drop and roll, take 2%. *You'll probably die with a huge portfolio.

The flip side of this is that if we experience such an event, the cost of everything may very well drop through the floor...who could afford to buy anything with no jobs and no money? *Loan defaults levels will be legendary...those of us who still have cash in hand will be able to scoop up properties for pennies on the dollar. *And we'll be shoulder to shoulder with a bazillion people out of work, with no money, with huge debts, who have no idea what to do now. *We'll have years of experience living without the cube farm, living on less money, many of us have no debt to service, and we'll still have a lot more money in the bank than most of our contemporaries who earn and burn.

I think we'll be ok.

Tell ya what though Petey, when PeteyCalc comes out, I'll push to have Dory put it up alongside FireCalc and I'll use it just as often to see what another potential view of my future ER will look like. *So get working on it. *And I do hope to continue to see more of your perspectives as you seem to me to be a smart guy. *Just try to play better with others?

TH,

What was the dividend yield between your quoted date range, 1929 to 1959? My understanding was that it was fairly good like 4% in 1929. If this was the case then one could live off dividends and survival rates would be okay. Is this the same today with 1.8% dividends? I would suggest to you that a lower dividend yield is a worst case scenario today because one cannot easily live off low yields and bubble capital values. Part of that is indicative of the higher yield chasing that investors have done over the last 24 months.

Petey
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Re: 4% of what?
Old 03-27-2005, 10:33 AM   #107
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Re: 4% of what?

What did bonds do then?

What will bonds do over the next 5 years?

What will dividends do over the next 5 years?

Are dividend bearing stocks available that are reasonably safe investments and produce 4%+ dividends and continue those dividends over the next 5 years?

Will more be available over the next 5 years?

What will stocks really do over the next 5 years.

I dont know. Neither do you.

By the way, you're stuck. You think I disagree with your basic points. I'm going to say it a little louder this time so you get the point.

I DO NOT DISAGREE WITH YOUR POINTS, I DISAGREE WITH YOUR METHOD OF PRESENTING THEM - THAT PEOPLE WHO DONT THINK LIKE YOU ARE IDIOTS

I personally believe the S&P500 is overvalued. I think we'd have a better ride going forward if dividends were higher. Bonds dont pay crap. Rising interest rates do indeed mean problems over the next year or two for bond investors who arent holding to maturity. There are no 'cheap' investments to my eyes.

Could be that we're in for some trouble. What will happen? I dont know. So I employ a good and varied asset allocation plan and stick with it until I either run out of money or die.

What are your alternative offerings?
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Re: 4% of what?
Old 03-27-2005, 10:37 AM   #108
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Re: 4% of what?

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Hi th!
As for managed vs indexed I just think that Petey changed his mind as you can see further up this thread.

As to the 4% rule (of thumb!) we agree.

Cheers!

I have not changed my mind, Ben. I merely explained the specifics of the UK situation where some products are overly expensive, some products are unavailable and so one has to take a look at things on a case by case basis. If I could access US mutual funds for the US market, I would still take them. Dodge & Cox, Clipper, Third Avenue and a handful of others have a strict value approach and provide respectable returns in a safer manner than a value index fund.

So I haven't change my position on efficient markets. One has to examine the degree of outperformance possible vs the costs. In the case of Asia small cap value, I can only get in at 2.5% fees but the small cap premium covers than and any value premium would be the cream. Besides that, the diversification is attractive enough that same returns as the Asia ex-Japan index would be perfectly acceptable.

One has take a look on a case-by-case basis. I try to do that but efficient market has been shredded by the reality of behaviour psychology. Investors as a group are not rational and so prices cannot be rational as prices do not move separate to investors.

Petey
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Re: 4% of what?
Old 03-27-2005, 10:43 AM   #109
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Re: 4% of what?

TH,

Now it appears to be you with the attitude. I have not once accused you of being stupid as you suggest. I merely stated my POV with backup data which you never supplied. I took the time to supply the actual data.

Last time I checked the iShares DVY was paying a little over 3% dividend (net of fees). Not sure I see a 4% dividend from companies that are still able to grow with inflation. Even something like the Vanguard Energy fund which one would think would pay a high dividend yield due to expensive crude and buffo oil profits still pays less than 1.5% I believe. To get the high dividends you suggest one has to focus much more in financials which concerns many as more risky.

I don't disagree with a diversified strategy.

Petey



Quote:
What did bonds do then?

What will bonds do over the next 5 years?

What will dividends do over the next 5 years?

Are dividend bearing stocks available that are reasonably safe investments and produce 4%+ dividends and continue those dividends over the next 5 years?

Will more be available over the next 5 years?

What will stocks really do over the next 5 years.

I dont know. *Neither do you.

By the way, you're stuck. *You think I disagree with your basic points. *I'm going to say it a little louder this time so you get the point.

I DO NOT DISAGREE WITH YOUR POINTS, I DISAGREE WITH YOUR METHOD OF PRESENTING THEM - THAT PEOPLE WHO DONT THINK LIKE YOU ARE IDIOTS

I personally believe the S&P500 is overvalued. *I think we'd have a better ride going forward if dividends were higher. *Bonds dont pay crap. *Rising interest rates do indeed mean problems over the next year or two for bond investors who arent holding to maturity. *There are no 'cheap' investments to my eyes.

Could be that we're in for some trouble. *What will happen? *I dont know. *So I employ a good and varied asset allocation plan and stick with it until I either run out of money or die.

What are your alternative offerings?
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Re: 4% of what?
Old 03-27-2005, 10:51 AM   #110
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Re: 4% of what?

:

Maybe you should re-read your own posts for the attitude that Ben also noted.

I cannot provide you with data for the futurel I provided data for the past, its all we have.

I can find at least 30 good companies paying north of 4%. So could Unclemick. How about Altria, SBC, Verizon, Merck, Bristol Myers, Conagra, and several reits and timber companies?
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Re: 4% of what?
Old 03-27-2005, 11:11 AM   #111
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Re: 4% of what?

Quote:
:

Maybe you should re-read your own posts for the attitude that Ben also noted.

I cannot provide you with data for the futurel *I provided data for the past, its all we have.

I can find at least 30 good companies paying north of 4%. *So could Unclemick. *How about Altria, SBC, Verizon, Merck, Bristol Myers, Conagra, and several reits and timber companies?
Conagra and Bristol Myers have growth issues. Altria has legal issues, as does Merck. How many of these are reasonably safe investments? I'm sure we can all find unsafe ones that yield high.

I have no problem with you looking at the past as *one* indicator. You seem to use it as the *sole* indicator. That is very different. I gave examples of other present-day indicators which are more useful. Indicators that William Bernstein has used in his books.

As to the rest of your message, I think you have given more than you have gotten and I find your tone unpleasant also. I've provided concrete current information, you've provided nothing of the kind. I stand by the information I shared.

Petey

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Re: 4% of what?
Old 03-27-2005, 11:31 AM   #112
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Re: 4% of what?

When I FIRE I want to go for DVY or PEY for that estm. 3-4% dividend yield - I might even build my own ETF with multiple seperate div. payers - but doubt I will have the desire to research all those companies. Cheers!
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Re: 4% of what?
Old 03-27-2005, 12:29 PM   #113
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Re: 4% of what?

O.K., so now I'm getting a little nervous, I have 25% of my portfolio in S&P index funds, and when people who disagree on many things agree that they are inflated and due for poor performance, I take notice. TH, Petey, are you thinking the S&P is in the crapper for 2 years or 20? No crystal ball, I understand. What do people here think of equally weighted index funds?

As far as the 4% rule, I think everyone here just uses it as a rule of thumb, and understands where the rule comes from. I've never seen a religous dogma-like attitude about it...."Firecalc, I am not worth, but only say the word and I shall be retired....." Happy Easter/Passover everybody.
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Re: 4% of what?
Old 03-27-2005, 12:30 PM   #114
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Re: 4% of what?

Petey -

You've called people who feel differently about investing than you do "wrong" "not sensible" and "speaking nonsense". Thats a little more offensive than pointing out that your opinions are not facts.

As far as my using history as a *sole* indicator, I've done no such thing. Historic data is, however, the only data we have. We can look at current states and make active decisions based on those current states, presuming where they will go in the future.

So far in almost any economy in any country at any time, that has been a fools errand. Maybe it'll be different this time though.

As far as 'growth problems' and 'legal issues', every company has its problems, its supporters and detractors. Altria's been in 'legal trouble' for decades. Its still been an excellent stock to own. Many 'experts' say that the drug stocks are 'cheap' and the legal problems are more than priced in. I dont know, as my crystal ball is in a box in the garage somewhere.

Sorry you've found my challenging your 'facts' to be unpleasant. I've tried very had to agree with you, but you seem determined to shove me into the "index fund idiot" box.

I've found your approach to presenting an alternative perspective equally crappy.

Perhaps I'm just overly sensitized as we just got rid of a disruptive troll that told us all that we were doing it wrong and persecuting him for having a different opinion. What actually happened was a disruptive entity moved in that had no more idea of whats going to happen than anyone else, he offered no tools or methodologies that were any more or less workable than the ones already on the table, but made sure to wave his arms like a chicken in every thread he could post in.

Anyhow, it appears that my efforts to help you explain your perspective without turning people off while largely agreeing with you is for naught.

Have a nice day.
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Re: 4% of what?
Old 03-27-2005, 12:40 PM   #115
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Re: 4% of what?

Quote:
O.K., so now I'm getting a little nervous, I have 25% of my portfolio in S&P index funds, and when people who disagree on many things agree that they are inflated and due for poor performance, I take notice. TH, Petey, are you thinking the S&P is in the crapper for 2 years or 20? No crystal ball, I understand. What do people here think of equally weighted index funds?

As far as the 4% rule, I think everyone here just uses it as a rule of thumb, and understands where the rule comes from. I've never seen a religous dogma-like attitude about it...."Firecalc, I am not worth, but only say the word and I shall be retired....." Happy Easter/Passover everybody.
Thing is Laurence, nobody knows. Stocks, in particular indexes like the S&P500 and TSM look rather expensive to me and are well above the "mean". It makes some sense to say that they'll either drop a bunch to compensate for the overload (like in 1929) or go sideways for a long time (like in the 60's and 70's) to normalize.

Or the new world economy, the internet and tulip bulbs have changed everything and the current valuation is the 'new norm'.

Or maybe nobody really knows how to value stocks against the economic considerations, the political considerations and the psychological ones. Maybe theres so much more money in the markets now that higher values are supportable. Maybe maybe maybe.

The key is to keep yourself in 3-5 uncorrelated asset classes, spread the money around, keep your investment costs low and wait it out. You really cant do much better than that. You could not own stocks until they reach the 'right valuation'. Historically however, most of the movement (up and down) has been in very few days. You'd have to pick the right days to be out, the right days to be in. Good luck with that.

Well, my wifes tapping her foot, its time to go to grammas house...
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Re: 4% of what?
Old 03-27-2005, 05:46 PM   #116
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Re: 4% of what?

Quote:

Mikey,

Not sure what you meant by this Mikey? - Most of the young folks on this forum have quite a bit of assets, are still working, and plan to have quite a pile before pulling the plug.

I think anyone that is capable of having an SWR discussion, has their finances under control and is way out front of 95% of the U.S. Population. Everyone has their own path to financial security. I have not seen any plan on this forum that is not workable yet. We all have our Aces in the Hole, should market returns be flat for the next 10,20,30 years. Reverse Mortgages, Cutting budgets, Social Security (heck my wife and I's SS could be as much as $40K a year!) etc. etc. And there is my ultimate fall back plan that I call - Trout Bum in a Trailer!

What bothers me most, is that some folks are worrying about investing, market returns, switching portfoilos on a daily basis. They aren't retired either! - They have a Full Time Job managing their Investments! - One that I would never want!

As the Coffeehouse philosophy says: Invest your money, cover the total asset returns and get a life. A lot of folks on this forum (apparently) seem to be masticating. It's time to swallow....
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Re: 4% of what?
Old 03-27-2005, 05:52 PM   #117
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Re: 4% of what?

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Not sure what you meant by this Mikey? *- Most of the young folks on this forum have quite a bit of assets, are still working, and plan to have quite a pile before pulling the plug.
Cut-Throat, I think I was just full of it. I agree, nobody here who has stayed around long seems unrealistic.

I do spend a lot of time on investing, though I wouldn't characterize it as worrying. Partly it is because my path to ER was different from most. It wasn't from high salary. or extremely frugal living. It was from investing. So in a way I am not retired, but I don't care. What I didn't like was fetters on my autonomy. I never minded effort or the need to do things day to day.

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Re: 4% of what?
Old 03-28-2005, 03:25 AM   #118
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Re: 4% of what?

I wanted to respond to only a portion of laurencewill's post, as th has already provided an excellent reply to most of it.

Just in case you weren't aware, there is one fund that does track the S&P 500 EWI. Actually an ETF, RSP, which was started in 2003 is a very new fund with little history in the real world, but whose index has some history back to about 1990, IIRC. It has over 700 million in assets currently.

The issues I've seen discussed regarding potential problems with investing in this issue are what most who use index-related investments concentrate on anyway.

One is with tracking error. Since each of the 500 stocks in the S&P500 have equal weightings, 0.2% each, that has to be maintained to track the index. The S&P committee rebalances the index quarterly, and several stocks have frequently exceeded their alloted weighting even that short period. Thus, the index is rather hard to track closely.

Which brings up the issue of costs, specifically transaction costs. Since the S&P500 index, which is primarly a large-cap index, does have mid-caps and even-small-caps included as members, shares will have to be bought and sold to maintain an equal weighting. More buying and selling will cost the fund's returns a bit more than the cap-weighted index. Which may be partially be the reason the fund's ER of 0.4% is higher than say Vanguard's VFINX, or Fidelity's S&P 500 fund.

additionally, costs will also be higher for RSP because of its smaller issues lack of liquidity. Smaller issues aren't as easily bought and sold as say GE, WMT or JNJ.

If you wanted to read more, I found a more detailed look at this topic located at:
https://www.my401ksales.com/forms/burgess0105.pdf

You'll see that RSP's returns have outperformed the standard index for most periods measured. But what does it add to one's overall portfolio, since you'll now have increased you allocation to mid and small-cap stocks. How this fund fits in with the rest of your holdings, and what it does to your asset class weightings should also be considered before jumping on the past performance train, IMHO.

HTH

Bookm
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Re: 4% of what?
Old 03-28-2005, 05:44 AM   #119
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Re: 4% of what?

Bookm

I believe the early tries/pioneers?? of indexing attempted equal weight for the S&P and threw in the towel - mainly due to the mechanics/difficulty of making such a strategy work for a fund. Cap weighted won by 'ease of management/operating' issues' rather than performance.

I can't remember where this was discussed - I can't find the article.

Perhaps some posters know the history?? ??Wells Fargo??
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Re: 4% of what?
Old 03-28-2005, 06:05 AM   #120
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Re: 4% of what?

Yes, unclemick2, I recall reading that IIRC somewhere, related to Bernstein or Bogle's writings - it was one of the first attempts at indexing by Wells Fargo, to use in some conpany's pension plan or retirement plan.

Why the trivial matters stick in my mind and the important stuff don't, I dunno. :

Bookm

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