Join Early Retirement Today
Reply
 
Thread Tools Search this Thread Display Modes
Edward Jones take on index funds...
Old 08-14-2015, 01:15 PM   #1
Full time employment: Posting here.
Tailgate's Avatar
 
Join Date: Jul 2013
Location: Texas
Posts: 881
Edward Jones take on index funds...

I'm dealing with an inherited account at Edward Jones in this thread ..this is my first exposure to this company. An article front and center on their website titled How Am I Doing? Putting Your Investment Performance into Perspective takes this interesting poke at index funds:

The Challenges of Comparing Performance to a Market Index
Some investors may compare the returns on their investments to a broad index, such as the S&P 500, and then question why they might be “underperforming” or “outperforming” this index at certain times. Though these indexes can provide insight into the general performance of stocks and bonds overall, they are usually not a relevant comparison to your own personal performance. Why?
1. A market index is not based on your goals or your tolerance for risk. If your goal was to produce income for retirement, you’d likely allocate a larger portion to fixed income. Therefore, it wouldn’t be appropriate to compare your returns to those of a stock index, such as the S&P 500.
2. Indexes are generally not diversified across different types of investments. This means they often can have wider swings in value. And to realize the extreme highs of an index, you must also be willing to accept the extreme lows.
3. Your performance will be affected by your contributions and withdrawals, while the published market returns aren’t. This is also why controlling our emotions is important, as we discuss toward the end of the report. There are also expenses and fees with investing, and the index performance typically does not include these costs.
Ultimately, your investment portfolio should be designed to help you reach your goals, and an index is not. Because of this, you should look at investment performance compared to the return you need, not the return of an index.


wow...
__________________

__________________
Tailgate is online now   Reply With Quote
Join the #1 Early Retirement and Financial Independence Forum Today - It's Totally Free!

Are you planning to be financially independent as early as possible so you can live life on your own terms? Discuss successful investing strategies, asset allocation models, tax strategies and other related topics in our online forum community. Our members range from young folks just starting their journey to financial independence, military retirees and even multimillionaires. No matter where you fit in you'll find that Early-Retirement.org is a great community to join. Best of all it's totally FREE!

You are currently viewing our boards as a guest so you have limited access to our community. Please take the time to register and you will gain a lot of great new features including; the ability to participate in discussions, network with our members, see fewer ads, upload photographs, create a retirement blog, send private messages and so much, much more!

Old 08-14-2015, 01:21 PM   #2
Recycles dryer sheets
 
Join Date: Sep 2007
Location: Portland/North Port
Posts: 182
Indeed, WOW. Unfortunately there are plenty of people are going to be OK with that explanation or is that exploitation :-)
__________________

__________________
neihn is offline   Reply With Quote
Old 08-14-2015, 01:27 PM   #3
Moderator
Walt34's Avatar
 
Join Date: Dec 2007
Location: Eastern WV Panhandle
Posts: 16,579
Quote:
There are also expenses and fees with investing, and the index performance typically does not include these costs.


Oh. Gee, I thought that was a good thing!
__________________
I heard the call to do nothing. So I answered it.
Walt34 is offline   Reply With Quote
Old 08-14-2015, 01:28 PM   #4
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
mickeyd's Avatar
 
Join Date: Apr 2004
Location: South Texas~29N/98W
Posts: 5,884
Quote:
There are also expenses and fees with investing, and the index performance
Quote:
typically does not include these costs.


I kinda like this sentence. But index funds do have expenses. Very low expenses.
__________________
Part-Owner of Texas

Outside of a dog, a book is man's best friend. Inside of a dog, it's too dark to read. Groucho Marx

In dire need of: faster horses, younger woman, older whiskey, more money.
mickeyd is offline   Reply With Quote
Old 08-14-2015, 01:50 PM   #5
Thinks s/he gets paid by the post
frayne's Avatar
 
Join Date: Oct 2002
Location: 19th Hole
Posts: 2,535
EDJ pushes managed funds and for good reason, they are after your money. I have a fairly good friend who has an EJD office, drives a nice car, nice house and takes very nice vacations. Not a bad living as most people don't want the hassle or the responsibility of managing their own investments, and EDJ is more than happy to help them and for a fee. Guess you could do worse, like Amerprise !
__________________
A totally unblemished life is only for saints.
frayne is offline   Reply With Quote
Old 08-14-2015, 01:54 PM   #6
Full time employment: Posting here.
 
Join Date: Apr 2015
Posts: 903
Quote:
Originally Posted by Tailgate View Post
An article front and center on their website titled How Am I Doing? Putting Your Investment Performance into Perspective takes this interesting poke at index funds:

The Challenges of Comparing Performance to a Market Index

Some investors may compare the returns on their investments to a broad index, such as the S&P 500, and then question why they might be “underperforming” or “outperforming” this index at certain times. Though these indexes can provide insight into the general performance of stocks and bonds overall, they are usually not a relevant comparison to your own personal performance. Why?

1. A market index is not based on your goals or your tolerance for risk. If your goal was to produce income for retirement, you’d likely allocate a larger portion to fixed income. Therefore, it wouldn’t be appropriate to compare your returns to those of a stock index, such as the S&P 500.

2. Indexes are generally not diversified across different types of investments. This means they often can have wider swings in value. And to realize the extreme highs of an index, you must also be willing to accept the extreme lows.

3. Your performance will be affected by your contributions and withdrawals, while the published market returns aren’t. This is also why controlling our emotions is important, as we discuss toward the end of the report. There are also expenses and fees with investing, and the index performance typically does not include these costs.

Ultimately, your investment portfolio should be designed to help you reach your goals, and an index is not. Because of this, you should look at investment performance compared to the return you need, not the return of an index.
In fairness, statements 1-3 above are true. What they don't say for #1&2 is you can get risk management and diversification among different types of investments by investing in other index funds (bond, int'l stock, real estate, etc). As for #3, yes, the index itself doesn't include expenses but mutual fund companies do publish returns net of expenses of index funds and ETFs and those expenses are quite a bit lower than active management.

The last statement though, yeah just no. Sure, you don't compare performance (net of expenses) with just the S&P 500 but you should certainly be able to compare it with a portfolio of index funds with similar asset allocation.
__________________
hnzw_rui is offline   Reply With Quote
Old 08-14-2015, 02:01 PM   #7
Recycles dryer sheets
 
Join Date: Aug 2014
Location: Western Canada
Posts: 393
I wouldn't say it's absurd. Badly worded and slanted perhaps. Let's try a couple of changes so we get:

Quote:
The Challenges of Comparing Performance to a Market Index
Some investors may compare the returns on their investments to a broad index, such as the S&P 500, and then question why they might be “underperforming” or “outperforming” this index at certain times. Though these indexes can provide insight into the general performance of stocks and bonds overall, they are usually not a relevant comparison to your own personal performance. Why?
1. A market index is not based on your goals or your tolerance for risk. If your goal was to produce income for retirement, you’d likely allocate a larger portion to fixed income.
If you are not 100% invested in large-cap US equities, Therefore, it wouldn’t be appropriate to compare your returns to those of a stock index, such as the S&P 500.
2. Indexes are generally not diversified across different types of investments. This means they often can have wider swings in value. And to realize the extreme highs of an index, you must also be willing to accept the extreme lows.
3. Your performance will be affected by your contributions and withdrawals, while the published market returns aren’t.
This is why you have to be able to do basic arithmetic This is also why controlling our emotions is important, as we discuss toward the end of the report. There are also expenses and fees with investing, and the index performance typically does not include these costs.

Ultimately, your investment portfolio should be designed to help you reach your goals, and an index is not. Because of this, you should look at investment performance compared to the return you need, not the return of an index.
a benchmark derived from your asset allocation
How bad is that?
__________________
I'm not crazy. Honest, the judge had me tested.
Rick_Head is offline   Reply With Quote
Old 08-14-2015, 02:15 PM   #8
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
 
Join Date: May 2005
Posts: 13,290
Quote:
Originally Posted by hnzw_rui View Post
In fairness, statements 1-3 above are true. What they don't say for #1&2 is you can get risk management and diversification among different types of investments by investing in other index funds (bond, int'l stock, real estate, etc). As for #3, yes, the index itself doesn't include expenses but mutual fund companies do publish returns net of expenses of index funds and ETFs and those expenses are quite a bit lower than active management.

The last statement though, yeah just no. Sure, you don't compare performance (net of expenses) with just the S&P 500 but you should certainly be able to compare it with a portfolio of index funds with similar asset allocation.
Kinda what I was going to say... they artfully just threw down the S&P 500 as the default index and did not give the option of investing your portfolio in the AA you want with OTHER index funds at low costs instead of their funds at high costs....

But, if you are not that good at investing, it is a great way to pry more fees out of people.... explaining away bad performance...
__________________
Texas Proud is offline   Reply With Quote
Old 08-14-2015, 02:17 PM   #9
Full time employment: Posting here.
Tailgate's Avatar
 
Join Date: Jul 2013
Location: Texas
Posts: 881
Quote:
Originally Posted by Rick_Head View Post
I wouldn't say it's absurd. Badly worded and slanted perhaps. Let's try a couple of changes so we get:

How bad is that?
excellent editing!
__________________
Tailgate is online now   Reply With Quote
Old 08-14-2015, 02:32 PM   #10
Full time employment: Posting here.
 
Join Date: Apr 2015
Posts: 903
Quote:
Originally Posted by Texas Proud View Post
Kinda what I was going to say... they artfully just threw down the S&P 500 as the default index and did not give the option of investing your portfolio in the AA you want with OTHER index funds at low costs instead of their funds at high costs....

But, if you are not that good at investing, it is a great way to pry more fees out of people.... explaining away bad performance...
Yup. I'm actually quite impressed with the article. They didn't outright lie but they managed to excuse their performance and fees with some half-truths. What's the saying, always base your lies on the truth?
__________________
hnzw_rui is offline   Reply With Quote
Old 08-14-2015, 02:52 PM   #11
Thinks s/he gets paid by the post
 
Join Date: Mar 2011
Posts: 3,709
Quote:
Originally Posted by hnzw_rui View Post
Yup. I'm actually quite impressed with the article. They didn't outright lie but they managed to excuse their performance and fees with some half-truths. What's the saying, always base your lies on the truth?
As I was reading I got the feeling that it was more about what was NOT being said.
__________________
Living well is the best revenge!
Retired @ 52 in 2005
marko is offline   Reply With Quote
Old 08-14-2015, 03:07 PM   #12
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
 
Join Date: Apr 2013
Posts: 5,603
Exactly when I did technical sales support, we called this cr*p spin. If they were foolish enough to believe it, you did your j*b.
__________________
MRG is online now   Reply With Quote
Old 08-15-2015, 06:39 AM   #13
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
donheff's Avatar
 
Join Date: Feb 2006
Location: Washington, DC
Posts: 8,649
That is one cynical, manipulative piece of BS.
__________________
Every man is, or hopes to be, an Idler. -- Samuel Johnson
donheff is offline   Reply With Quote
Old 08-15-2015, 06:54 AM   #14
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
 
Join Date: Jul 2005
Posts: 5,414
the only point they got correct is that comparing to an index is almost a straw-man return.

we all have different buy points , sell points , we add money at different times and amounts and we rebalance at different times.

that makes any comparison for anyone but a static investor not comparable.

after all grandma can buy a higher fee fund at at a better buying time and beat the index hands down vs the boglehead .

timing of all those things are such important pieces of the puzzle that few can actually compare to any benchmark .

it is like my benchmark now is if i called it quits and just threw everything in wellesely , did i do better or worse ? but even if i did , all those other parameters may make your results in wellesley very different from my results depending when we bought . .
__________________
mathjak107 is offline   Reply With Quote
Old 08-15-2015, 06:56 AM   #15
Recycles dryer sheets
 
Join Date: Jan 2015
Location: Toronto
Posts: 179
I think the statements are entirely reasonable. Their audience is less sophisticated investors - the sort who would be terrified to be invested wholy in the market. A less self-interested advisor would counsel clients on accepting risk, and show them how over time the S&P index is a better investment than the large majority of mutual funds. But we shouldn't be surprised that EDJ is in business to make money for themsrlves, not their clients. So they will make a bucket of money selling high-priced products to people who find investing to be scary and complicated. Is EDJ publicly traded? Maybe I should buy some shares....
__________________
Davis65 is offline   Reply With Quote
Old 08-15-2015, 07:36 AM   #16
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
easysurfer's Avatar
 
Join Date: Jun 2008
Posts: 7,899
Funny how to make the argument, EDJ doesn't mention that there are different type of index funds, such as total bond indexes. Of course, then that would mess with their argument about not diversified .
__________________
Have you ever seen a headstone with these words
"If only I had spent more time at work" ... from "Busy Man" sung by Billy Ray Cyrus
easysurfer is online now   Reply With Quote
Old 08-15-2015, 07:52 AM   #17
Full time employment: Posting here.
 
Join Date: Jul 2011
Posts: 721
I'm not an advocate for Ed Jones- actually don't like them at all. But they're not really talking about index funds at all. The point of the article is that you shouldn't compare your own portfolio returns to a broad market index. For example, if your portfolio is 5% cash, 45% bonds, 10% international stocks and 40% US, then you shouldn't compare your returns to the DOW. It's like comparing apples and oranges. Last year was a good example, if you had everything in US Large caps, you would have done well and the S&P 500 Index would have been a good benchmark. But if you had a diversified portfolio, then you didn't do as well because some asset classes lagged... like international, real estate, etc. Their point about the fees was simply that a benchmark (index) like the S&P 500 doesn't actually have an expense ratio because it's not a mutual fund. So fees need to be considered.
__________________
panacea is offline   Reply With Quote
Old 08-15-2015, 08:43 AM   #18
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
 
Join Date: Apr 2013
Posts: 5,603
Quote:
Originally Posted by Davis65 View Post

..snip..
Is EDJ publicly traded? Maybe I should buy some shares....
Privite company.
__________________
MRG is online now   Reply With Quote
Old 08-15-2015, 08:45 AM   #19
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
NW-Bound's Avatar
 
Join Date: Jul 2008
Posts: 19,444
What EJ says is not wrong, just not the whole truth.

But, but, but, if you are going to hold it against them, hell, how would you think about any salesman, businessman, and heaven forbid, politicians?
__________________
"Old age is the most unexpected of all things that can happen to a man" -- Leon Trotsky
NW-Bound is offline   Reply With Quote
Old 08-15-2015, 10:43 AM   #20
Moderator Emeritus
Bestwifeever's Avatar
 
Join Date: Sep 2007
Posts: 16,375
Brilliant on EJ's part! DH has $50k with them also as an inheritance like the OP. He kept it there (his money, his choice) but moved the $$ into a couple of funds we researched on our own. When we asked the agent about the EJ fees in general she immediately went into attack mode (nicely though ) on Vanguard instead without answering the question.

A couple of times a year DH is also invited to come in and talk with the agent about refining his strategy. I guess EJ can point out that Vanguard doesn't do that either.
__________________

__________________
“Would you like an adventure now, or would you like to have your tea first?” J.M. Barrie, Peter Pan
Bestwifeever is offline   Reply With Quote
Reply


Currently Active Users Viewing This Thread: 1 (0 members and 1 guests)
 
Thread Tools Search this Thread
Search this Thread:

Advanced Search
Display Modes

Posting Rules
You may not post new threads
You may not post replies
You may not post attachments
You may not edit your posts

BB code is On
Smilies are On
[IMG] code is On
HTML code is Off
Trackbacks are Off
Pingbacks are Off
Refbacks are Off


Similar Threads
Thread Thread Starter Forum Replies Last Post
Merrill Lynch or Edward Jones?? rdjrn FIRE and Money 95 07-23-2012 10:09 PM
How Edward Jones advisors are compensated Helen FIRE and Money 3 10-18-2011 12:38 PM
Mom, Edward Jones, and a CIT Bond region2 Other topics 7 08-16-2009 04:55 PM
Things must be slow at Edward Jones... Gonzo Other topics 10 10-04-2006 11:09 AM

 

 
All times are GMT -6. The time now is 05:50 PM.
 
Powered by vBulletin® Version 3.8.8 Beta 1
Copyright ©2000 - 2017, vBulletin Solutions, Inc.