I'm starting to warm up to Index Funds - Page 3

mathjak107 · 11-09-2006, 03:20 AM

well my actively managed portfolio of funds had a worst case year in the 2,000's of minus -14.5% while still averaging close to 13% for almost 20 years. i cant speak for anyone else but im convinced it was well worth it going active.

heyyou · 11-09-2006, 08:01 AM

Can you repeat that performance going forward? Is going active good advice for someone else? Yes, someone always does better than indexes. Indexes only deliver average returns less tiny expenses. Someone is bound to do better because the higher risk of active funds should yield higher returns for a fraction of the active investors along with below index returns for the majority of active investors. You are exceptionally smart and quite lucky simultaneously, now what advice do you have for the next poster that wanders in here trying to get to ER? Go active because it sometimes works, or settle for passive returns that will work for sure but the time is inderterminant? You, Lynch, Buffet, Soros, and Miller have different results than the rest of your coworkers at your old job. Which path should they choose today to ER in 25 years?
Joe

FinanceDude · 11-09-2006, 09:45 AM

Quote:

Originally Posted by heyyou

Can you repeat that performance going forward? Is going active good advice for someone else? Yes, someone always does better than indexes. Indexes only deliver average returns less tiny expenses. Someone is bound to do better because the higher risk of active funds should yield higher returns for a fraction of the active investors along with below index returns for the majority of active investors. You are exceptionally smart and quite lucky simultaneously, now what advice do you have for the next poster that wanders in here trying to get to ER? Go active because it sometimes works, or settle for passive returns that will work for sure but the time is inderterminant? You, Lynch, Buffet, Soros, and Miller have different results than the rest of your coworkers at your old job. Which path should they choose today to ER in 25 years?
Joe

I dont think whether you can ER or not is based upon Index versus Active. What really comes into play is whether you can delay gratification by LBYM and a willingness to save a substantial portion of your current income.

I have clients that have become millionaires over a LONG period of time rolling CD's and Treasuries................

I still submit the WILLINGNESS to FUND retirement is more the key than the investment vehicle chosen........i.e. index versus active.

A pretty large portion of my mutual funds have been around for 25-30 years before Vanguard even opened shop...........not sure what you are trying to say.......

Hydroman · 11-09-2006, 03:06 PM

I think index funds are the best way to go in the long run when investing during your working/accumulation years. The question for me is whether actively managed funds reduce volatilty and increase your SWR success during your retirement years. I am willing to trade some long term return for less volatilty during retirement.

My ER portfolio is going to be 50% VG Wellesley and 50% VG Star.

yakers · 11-09-2006, 03:26 PM

I kind of agree with you, at least about the reducing volatility part. There are more kinds of indexes than just the S&P500. You could also hold a bond index, total market, total international and the like, together that should reduce volatility with adequate return and growth. That is the way my target retirement fund is structured and so far I am happy with it. Now my wife's 403b is in the process of being transferred to VG where we expect it to go into......Wellesley &.. ....Star. So obviously I think those are good funds, I only wanted to point out that if you wanted to, you could use a combination of index funds to reduce volatility.

Quote:

Originally Posted by Hydroman

Ithink index funds are the best way to go in the long run when investing during your working/accumulation years. The question for me is whether actively managed funds reduce volatilty and increase your SWR success during your retirement years. I am willing to trade some long term return for less volatilty during retirement.

My ER portfolio is going to be 50% VG Wellesley and 50% VG Star.

ats5g · 11-09-2006, 09:03 PM

Quote:

Originally Posted by Hydroman

I think index funds are the best way to go in the long run when investing during your working/accumulation years. The question for me is whether actively managed funds reduce volatilty and increase your SWR success during your retirement years. I am willing to trade some long term return for less volatilty during retirement.

My ER portfolio is going to be 50% VG Wellesley and 50% VG Star.

Hydroman,

I think you're SOL.

Seriously though, Wellesley and Wellington showed about the same volatility [i.e. standard deviation] as a similarly weighted fund using LV and bond indices. However, many people seem to like the appearance of lower volatility of balanced funds, so go right ahead. Also, STAR is probably one of the most diversified balanced funds, so I think your 2 fund solution should do just fine.

- Alec

mathjak107 · 11-10-2006, 03:34 AM

a big part of a long term strategy is not growing poorer on the dips. you dont need as long and as much of a rise to get ahead again. since downturns are still a big part of being in the market they count very heavily.
in fact you always see the ole "IF YOU MISSED THE 10 BEST DAYS OF THE MARKET" YOUR RETURN WOULD SUCK. but you never see if you missed the 10 worst days

with index funds you will take a nasty dip , with active funds you may or may not take as nasty a dip. its always been my own strategy to take the better odds which is at least some chance of not falling as much. so far for 20 years its been playing out very well for me. i may start to split some off next year into an index strategy but i will maintain the bulk in active mgmt.

youbet · 11-10-2006, 08:48 AM

Quote:

Originally Posted by mathjak107

with index funds you will take a nasty dip , with active funds you may or may not take as nasty a dip.

Or with active funds you may "take a dip" that is greater than with index funds.

FinanceDude · 11-10-2006, 10:10 AM

Quote:

Originally Posted by youbet

Or with active funds you may "take a dip" that is greater than with index funds.

Depends on which active funds............

Bottom line the debate will never end.........

All I can offer is: You can get to ER< either way, MORE of it depends on delaying gratification (LBYM) than anything else.

I enjoy these lively debates, if we all agreed it would be pretty boring.

youbet, keep in mind I have access to programs and other resources the average investor does not, so perhaps I have that as a small advantage in some ways.......

wildcat · 11-10-2006, 03:06 PM

Quote:

youbet, keep in mind I have access to programs and other resources the average investor does not, so perhaps I have that as a small advantage in some ways

youbet · 11-10-2006, 03:18 PM

Quote:

Originally Posted by FinanceDude

Depends on which active funds............

Of course!

Quote:

youbet, keep in mind I have access to programs and other resources the average investor does not, so perhaps I have that as a small advantage in some ways.......

I'm not sure what you're saying. Do you mean you have software and information that will allow you to be able to pick active funds that will outperform indexes at all times and without exception?

justin · 11-10-2006, 03:21 PM

Quote:

Originally Posted by FinanceDude

youbet, keep in mind I have access to programs and other resources the average investor does not, so perhaps I have that as a small advantage in some ways.......

spidey sense?

If by "other resources" you mean a crystal ball, then give us some inside tips.

Being serious for a minute, if one were to want to invest in actively managed funds, do you have any recommendations for good funds/fund families? In other words, what are you putting your clients in these days? I'm curious because I may be forced to recommend some actively managed funds for certain purposes and I'd rather get the good actively managed funds instead of the crappy ones.

Any opinion on vanguard actively managed funds (the quant funds or other actively managed funds)?

FinanceDude · 11-10-2006, 03:37 PM

Quote:

Originally Posted by youbet

Of course!
I'm not sure what you're saying. Do you mean you have software and information that will allow you to be able to pick active funds that will outperform indexes at all times and without exception?

If I did that have info, why would I share it on here??

No matter what I or anyone else says, most folks on here are going to put total trust in index funds anyways.........

BTW, I don't NEED actively managed funds to BEAT indexes at ALL TIMES, I have beat them over the past 10 years using my own analysis, so that is good enough for me. And I also know that people are beating my up for using SPY and QQQ to do my indexing, but that is my choice, and so far, so good.............

. . . Yrs to Go · 11-10-2006, 06:46 PM

Quote:

Originally Posted by FinanceDude

All I can offer is: You can get to ER< either way, MORE of it depends on delaying gratification (LBYM) than anything else.

Sure you can get to ER in a lot of ways, but staying there is just, if not more, important.

A portfolio made up of 60% Vanguard Total Stock Market Index Admiral Shares and 40% Total Bond Market Index AS has an expense ratio of about 0.1%.

According to FIRECalc a 4% withdrawal rate at 60/40 split and a 10bp expense ratio has a 96.2% success rate over 30 years.

If you leave everything else the same and increase the expense ratio to your 62bp, the success rate drops to 90.6%. At 1% the success rate falls to 82.1% and at 1.25% plummets to 76.4%. Clearly expenses matter . . . a lot!

Further, the above example does not take into account the higher tax drag of managed funds or the higher transaction costs incurred by the trading within the portfolio. All those commissions paid to churn the portfolio don't show up in the published expenses but are real costs that eat into returns.

On top of all that, you better hope your manager does not underperform the market or your chances of staying ER'd drops further.

Quote:

Originally Posted by FinanceDude

youbet, keep in mind I have access to programs and other resources the average investor does not, so perhaps I have that as a small advantage in some ways.......

You'll excuse my skepticism that any "research" can determine which mutual funds will outperform the market on a going forward basis.

What, pray tell, do you do in year 3, or so, when you learn that your star fund manager just quit? Sell the fund and pay the gains taxes so you can buy the next "winner"?

FinanceDude · 11-10-2006, 10:23 PM

Quote:

Originally Posted by 3 Yrs to Go

Sure you can get to ER in a lot of ways, but staying there is just, if not more, important.

A portfolio made up of 60% Vanguard Total Stock Market Index Admiral Shares and 40% Total Bond Market Index AS has an expense ratio of about 0.1%.

According to FIRECalc a 4% withdrawal rate at 60/40 split and a 10bp expense ratio has a 96.2% success rate over 30 years.

If you leave everything else the same and increase the expense ratio to your 62bp, the success rate drops to 90.6%. At 1% the success rate falls to 82.1% and at 1.25% plummets to 76.4%. Clearly expenses matter . . . a lot!

Further, the above example does not take into account the higher tax drag of managed funds or the higher transaction costs incurred by the trading within the portfolio. All those commissions paid to churn the portfolio don't show up in the published expenses but are real costs that eat into returns.

On top of all that, you better hope your manager does not underperform the market or your chances of staying ER'd drops further.

You'll excuse my skepticism that any "research" can determine which mutual funds will outperform the market on a going forward basis.

What, pray tell, do you do in year 3, or so, when you learn that your star fund manager just quit? Sell the fund and pay the gains taxes so you can buy the next "winner"?

Hey, do what you want..........

How am I going to have a big tax drag? Do you have empirical data of this by someone else other than a Bogle??

The funds I carry have a weighted average turnover of 22% a year, so I don't know where you are getting your ideas. My fund's average manager tenure is 18 years, and so on.

You are not going to get me to carry 100% index funds in a portfolio no matter what. If I have been able to beat a portfolio of index funds by managing my active funds, why do you care??

mathjak107 · 11-11-2006, 04:17 AM

there have been years my portfolio hasnt beaten the indexes but if i pull out any 8-10 year time frames i have beaten the market in everyone of them. there isnt one major downturn that i have fallen in 20 years with my active funds that hasnt been way less than the markets.

as i get closer to retirement im not as concerned about growing richer as i am about not getting poorer.

my portfolio is geared to have about the same growth potential as the indexes but with only 75-80% of the risk.

so far so good,

. . . Yrs to Go · 11-11-2006, 08:33 AM

Make sure you compare apples to apples. My portfolio of index funds has handily beat the S&P 500 too.

heyyou · 11-11-2006, 08:46 AM

A fraction of all investors are truly going to beat the markets. Some of you are in that group. Good for you. Your methods have worked. Many, many others have tried and failed. That is one of the shortcomings of using averages as a hard data point, average is just the middle speck in a cloud of data points. There are many outliers.
Is the out-performance repeatable in the future? No one knows, but that doesn't matter to those who have the gold now. You don't have to keep performing like a fund manager does. I have no doubt about your success with active funds, I doubt the repeatibilty for most investors in the future.
One side has been successful and thinks it is all due to ability, and is coy about what was done. The other side thinks that market average is a hard ceiling on performance, so you can go that high but no higher, but they are happy to tell how to get to average. Plenty of talk, but little communication between the two.
Another group is the BeardstownLadies/Rich Dad authors who think they are successful investors, but are self-deluding. Few those here.

11-09-2006, 03:20 AM	#41
mathjak107 Thinks s/he gets paid by the post Join Date: Jul 2005 Posts: 2,430	Re: I'm starting to warm up to Index Funds well my actively managed portfolio of funds had a worst case year in the 2,000's of minus -14.5% while still averaging close to 13% for almost 20 years. i cant speak for anyone else but im convinced it was well worth it going active.

11-09-2006, 08:01 AM	#42
heyyou Recycles dryer sheets Join Date: Nov 2005 Posts: 231	Re: I'm starting to warm up to Index Funds Can you repeat that performance going forward? Is going active good advice for someone else? Yes, someone always does better than indexes. Indexes only deliver average returns less tiny expenses. Someone is bound to do better because the higher risk of active funds should yield higher returns for a fraction of the active investors along with below index returns for the majority of active investors. You are exceptionally smart and quite lucky simultaneously, now what advice do you have for the next poster that wanders in here trying to get to ER? Go active because it sometimes works, or settle for passive returns that will work for sure but the time is inderterminant? You, Lynch, Buffet, Soros, and Miller have different results than the rest of your coworkers at your old job. Which path should they choose today to ER in 25 years? Joe

11-09-2006, 03:06 PM	#44
Hydroman Recycles dryer sheets Join Date: Apr 2006 Posts: 147	Re: I'm starting to warm up to Index Funds I think index funds are the best way to go in the long run when investing during your working/accumulation years. The question for me is whether actively managed funds reduce volatilty and increase your SWR success during your retirement years. I am willing to trade some long term return for less volatilty during retirement. My ER portfolio is going to be 50% VG Wellesley and 50% VG Star.

11-10-2006, 03:34 AM	#47
mathjak107 Thinks s/he gets paid by the post Join Date: Jul 2005 Posts: 2,430	Re: I'm starting to warm up to Index Funds a big part of a long term strategy is not growing poorer on the dips. you dont need as long and as much of a rise to get ahead again. since downturns are still a big part of being in the market they count very heavily. in fact you always see the ole "IF YOU MISSED THE 10 BEST DAYS OF THE MARKET" YOUR RETURN WOULD SUCK. but you never see if you missed the 10 worst days with index funds you will take a nasty dip , with active funds you may or may not take as nasty a dip. its always been my own strategy to take the better odds which is at least some chance of not falling as much. so far for 20 years its been playing out very well for me. i may start to split some off next year into an index strategy but i will maintain the bulk in active mgmt.

11-11-2006, 04:17 AM	#56
mathjak107 Thinks s/he gets paid by the post Join Date: Jul 2005 Posts: 2,430	Re: I'm starting to warm up to Index Funds there have been years my portfolio hasnt beaten the indexes but if i pull out any 8-10 year time frames i have beaten the market in everyone of them. there isnt one major downturn that i have fallen in 20 years with my active funds that hasnt been way less than the markets. as i get closer to retirement im not as concerned about growing richer as i am about not getting poorer. my portfolio is geared to have about the same growth potential as the indexes but with only 75-80% of the risk. so far so good,

11-11-2006, 08:33 AM	#57
. . . Yrs to Go Thinks s/he gets paid by the post Join Date: Sep 2005 Posts: 1,557	Re: I'm starting to warm up to Index Funds Make sure you compare apples to apples. My portfolio of index funds has handily beat the S&P 500 too.

11-11-2006, 08:46 AM	#58
heyyou Recycles dryer sheets Join Date: Nov 2005 Posts: 231	Re: I'm starting to warm up to Index Funds A fraction of all investors are truly going to beat the markets. Some of you are in that group. Good for you. Your methods have worked. Many, many others have tried and failed. That is one of the shortcomings of using averages as a hard data point, average is just the middle speck in a cloud of data points. There are many outliers. Is the out-performance repeatable in the future? No one knows, but that doesn't matter to those who have the gold now. You don't have to keep performing like a fund manager does. I have no doubt about your success with active funds, I doubt the repeatibilty for most investors in the future. One side has been successful and thinks it is all due to ability, and is coy about what was done. The other side thinks that market average is a hard ceiling on performance, so you can go that high but no higher, but they are happy to tell how to get to average. Plenty of talk, but little communication between the two. Another group is the BeardstownLadies/Rich Dad authors who think they are successful investors, but are self-deluding. Few those here.