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Re: I'm starting to warm up to Index Funds
Old 11-11-2006, 10:50 PM   #61
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Re: I'm starting to warm up to Index Funds

My holdings change from year to year, but I currently hold the following:

American Funds Small Cap World
American FUnds Income Fund of America
American Funds Capital World Growth and Income
Lord Abbett Small Cap Value
ING Russia Fund
Marsico 21st Century
Neuberger Berman RE Trust

I am able to buy these funds at NAV, because I am an advisor...........

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Re: I'm starting to warm up to Index Funds
Old 11-12-2006, 02:18 PM   #62
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Re: I'm starting to warm up to Index Funds

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Originally Posted by FinanceDude
I've seen that report before...............

So you are telling me that actively managed Vanguard Funds DON'T face this same problem? Interesting...........

The report SAYS that trading costs are MORE of an issue to a fund than EXPENSE ratio..........

So I guess a low turnover mutual fund should be ok, or is that too logical to surmise?

Again, you seem dumbfounded folks other than you are not 100% in index funds.........I believe there are 12000 funds out there, so there are choices outside of Vanguard...........
You misunderstand me.

1) Vanguard actively managed funds fall into the category of "actively managed funds" and will suffer from the same shortcomings as other actively managed funds. Did I imply otherwise?

2) I could care less if you, or anyone else, invests in actively managed funds. In fact, I encourage you to. It is all of those research dollars being wasted spent in search of excess returns that drives market efficiency - and, incidentally, gives index investors a free ride. So once again, thanks for your contribution.


As far as the study goes, the authors did not look at expense ratios specifically. They do, however, refer to other studies claiming that fund returns are negatively correlated with expense ratios (the higher the expenses the lower the returns). The authors found that trading costs were at least as high as expense ratios and were more negatively correlated with returns then the expense ratio. So yes, while both were deemed detrimental to returns, trading costs were found to be more so. Interestingly, the authors found that expenses and trading costs were not correlated with one another, meaning that they were independent drivers of poor performance . . . i.e. high expenses combined with high trading costs are really, really, really bad for your financial health.

The authors also found that turnover, while contributing to trading costs only accounted for something like 60% (exact % subject to fact check). They found that trading costs were often times driven higher by trading stocks with high bid-offer spreads or brokerage costs. So while high turnover may indicate high trading costs, it isn't the whole story.

You missed the punch line of the study, though. They concluded that trading costs were nearly a dollar for dollar detriment to returns. Not only does all that activity fail to earn a positive return, it fails to offset any of its direct costs. So why do it?
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Re: I'm starting to warm up to Index Funds
Old 11-12-2006, 02:19 PM   #63
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Re: I'm starting to warm up to Index Funds

Quote:
Originally Posted by FinanceDude
My holdings change from year to year, but I currently hold the following:

American Funds Small Cap World
American FUnds Income Fund of America
American Funds Capital World Growth and Income
Lord Abbett Small Cap Value
ING Russia Fund
Marsico 21st Century
Neuberger Berman RE Trust

I am able to buy these funds at NAV, because I am an advisor...........

Yeah, but what about your clients. . . . . . .


5.75% sales charges and 1% expense ratios . . . yikes.

Good luck to you and your clients.
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Re: I'm starting to warm up to Index Funds
Old 11-12-2006, 08:36 PM   #64
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Re: I'm starting to warm up to Index Funds

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Originally Posted by 3 Yrs to Go
Yeah, but what about your clients. . . . . . .


5.75% sales charges and 1% expense ratios . . . yikes.

Good luck to you and your clients.
You're pretty critical for a guy that manages no other portfolios than his own, and has NO idea how life works outside of index funds.

Must be nice to live in a box of your own creation.......... : :

BTW, who said my clients are in these funds, anyway?? Perhaps you should know more about how advisors manage money before you think you know everything...........

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Re: I'm starting to warm up to Index Funds
Old 11-12-2006, 08:42 PM   #65
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Re: I'm starting to warm up to Index Funds

Quote:
Originally Posted by 3 Yrs to Go
You misunderstand me.

1) Vanguard actively managed funds fall into the category of "actively managed funds" and will suffer from the same shortcomings as other actively managed funds. Did I imply otherwise?

2) I could care less if you, or anyone else, invests in actively managed funds. In fact, I encourage you to. It is all of those research dollars being wasted spent in search of excess returns that drives market efficiency - and, incidentally, gives index investors a free ride. So once again, thanks for your contribution.


As far as the study goes, the authors did not look at expense ratios specifically. They do, however, refer to other studies claiming that fund returns are negatively correlated with expense ratios (the higher the expenses the lower the returns). The authors found that trading costs were at least as high as expense ratios and were more negatively correlated with returns then the expense ratio. So yes, while both were deemed detrimental to returns, trading costs were found to be more so. Interestingly, the authors found that expenses and trading costs were not correlated with one another, meaning that they were independent drivers of poor performance . . . i.e. high expenses combined with high trading costs are really, really, really bad for your financial health.

The authors also found that turnover, while contributing to trading costs only accounted for something like 60% (exact % subject to fact check). They found that trading costs were often times driven higher by trading stocks with high bid-offer spreads or brokerage costs. So while high turnover may indicate high trading costs, it isn't the whole story.

You missed the punch line of the study, though. They concluded that trading costs were nearly a dollar for dollar detriment to returns. Not only does all that activity fail to earn a positive return, it fails to offset any of its direct costs. So why do it?
It's easy to talk smart since it's 2006, and index funds have been up the past 3 years...........I would love to rewind time and see how happy you were with your beloved index funds from 2000-2003.

In a bull market, everyone makes money........in a bear market
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Re: I'm starting to warm up to Index Funds
Old 11-12-2006, 08:47 PM   #66
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Re: I'm starting to warm up to Index Funds

Quote:
Originally Posted by 3 Yrs to Go
You misunderstand me.

1) Vanguard actively managed funds fall into the category of "actively managed funds" and will suffer from the same shortcomings as other actively managed funds. Did I imply otherwise?

2) I could care less if you, or anyone else, invests in actively managed funds. In fact, I encourage you to. It is all of those research dollars being wasted spent in search of excess returns that drives market efficiency - and, incidentally, gives index investors a free ride. So once again, thanks for your contribution.


As far as the study goes, the authors did not look at expense ratios specifically. They do, however, refer to other studies claiming that fund returns are negatively correlated with expense ratios (the higher the expenses the lower the returns). The authors found that trading costs were at least as high as expense ratios and were more negatively correlated with returns then the expense ratio. So yes, while both were deemed detrimental to returns, trading costs were found to be more so. Interestingly, the authors found that expenses and trading costs were not correlated with one another, meaning that they were independent drivers of poor performance . . . i.e. high expenses combined with high trading costs are really, really, really bad for your financial health.

The authors also found that turnover, while contributing to trading costs only accounted for something like 60% (exact % subject to fact check). They found that trading costs were often times driven higher by trading stocks with high bid-offer spreads or brokerage costs. So while high turnover may indicate high trading costs, it isn't the whole story.

You missed the punch line of the study, though. They concluded that trading costs were nearly a dollar for dollar detriment to returns. Not only does all that activity fail to earn a positive return, it fails to offset any of its direct costs. So why do it?
Well, trading costs are probably pretty detrimental to high turnover funds, since my portoflio as a whole is under 30% turnover a year, not such a big deal. And 95% of this money is qualified. Plus, you take the report at face value. Remember all those guys "making it" as day traders? Ever wonder what happened to them? Ever hear the term "whipsawed by institutional traders"??
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Re: I'm starting to warm up to Index Funds
Old 11-13-2006, 08:24 PM   #67
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Re: I'm starting to warm up to Index Funds

Quote:
Originally Posted by FinanceDude
You're pretty critical for a guy that manages no other portfolios than his own, and has NO idea how life works outside of index funds.

Must be nice to live in a box of your own creation.......... : :


You have no idea who you are speaking to.
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Re: I'm starting to warm up to Index Funds
Old 11-13-2006, 09:06 PM   #68
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Re: I'm starting to warm up to Index Funds

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Originally Posted by 3 Yrs to Go
You have no idea who you are speaking to.
Say, isn't Bill Gates planning to retire in 3 years? :
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Re: I'm starting to warm up to Index Funds
Old 11-13-2006, 09:25 PM   #69
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Re: I'm starting to warm up to Index Funds

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Originally Posted by 3 Yrs to Go

You missed the punch line of the study, though. They concluded that trading costs were nearly a dollar for dollar detriment to returns. Not only does all that activity fail to earn a positive return, it fails to offset any of its direct costs. So why do it?
No, see, that study lumped all the funds together to produce average numbers. But, the managers of SOME active funds are well above average--they are endowed with super stock picking ability. As an investor, you just have to be able to pick the super stock pickers in advance. These guys are super stock pickers! Overcoming a 1% ER disadvantage and a 5% load is no problem for these guys.

It's a huge industry. Like Vegas, but with lower odds, a veneer of respectability, and no free drinks. But the House makes a killing.



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Re: I'm starting to warm up to Index Funds
Old 11-13-2006, 10:10 PM   #70
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Re: I'm starting to warm up to Index Funds

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Originally Posted by 3 Yrs to Go


You have no idea who you are speaking to.
Are you John Bogle??
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Re: I'm starting to warm up to Index Funds
Old 11-13-2006, 10:23 PM   #71
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Re: I'm starting to warm up to Index Funds

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No, see, that study lumped all the funds together to produce average numbers. But, the managers of SOME active funds are well above average--they are endowed with super stock picking ability. As an investor, you just have to be able to pick the super stock pickers in advance. These guys are super stock pickers! Overcoming a 1% ER disadvantage and a 5% load is no problem for these guys.

It's a huge industry. Like Vegas, but with lower odds, a veneer of respectability, and no free drinks. But the House makes a killing.
Something tells me these types of conversations would have been much more interesting before Google and Investopedia.com..............
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Re: I'm starting to warm up to Index Funds
Old 11-14-2006, 09:56 AM   #72
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Re: I'm starting to warm up to Index Funds

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Something tells me these types of conversations would have been much more interesting before Google and Investopedia.com..............
Access to information among the common folk doesn't change the fundamentals of the investing business.
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Re: I'm starting to warm up to Index Funds
Old 11-14-2006, 10:32 AM   #73
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Re: I'm starting to warm up to Index Funds

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Access to information among the common folk doesn't change the fundamentals of the investing business.
I wonder. Bogle et al have been beating the drum for a long time, and they are definitely having an impact. Education s working, but it is a slow process. Unfortunately, many of the sheep now being shorn really can't afford to lose the money that will be taken from them in fees, etc. It is a shame, but as we have talked about here frequently, it is very difficult to give people investment advice. Might as well talk about religion.
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Re: I'm starting to warm up to Index Funds
Old 11-14-2006, 10:33 AM   #74
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Re: I'm starting to warm up to Index Funds

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Access to information among the common folk doesn't change the fundamentals of the investing business.
Maybe not, but it sure changes the competition.

When everyone can raise their level of awareness, including competitors as well as customers, then you can't charge a fee for blissful ignorance and it's harder to find people willing to volunteer to pay one.
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Re: I'm starting to warm up to Index Funds
Old 11-14-2006, 10:44 AM   #75
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Re: I'm starting to warm up to Index Funds

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I wonder. Bogle et al have been beating the drum for a long time, and they are definitely having an impact. Education s working, but it is a slow process. Unfortunately, many of the sheep now being shorn really can't afford to lose the money that will be taken from them in fees, etc. It is a shame, but as we have talked about here frequently, it is very difficult to give people investment advice. Might as well talk about religion.
You are right on point with that comment. There's still no curriculum in high school, college, or tech colleges on a consistent basis.

I suppose the big problem is we as advisors are paid fees or commissions to work with clients. For instance, I charge a fixed fee on each account, but I do charge more on smaller accounts. I have found the smaller accounts take up twice as much time or more as my large clients.

I personally would like to see some big reform in financial services anyways. For one thing, most mutual fund companies and brokerage houses are not required to foward cost basis to the new firm if the advisor makes a change. With the techbology we have today, this is not hard at all. So, brokerage firms get a lousy name with investors because they have been fighting reform for years.

FWIW, I have seen more utter scalpings of innocent investors from the "friend of the family" insurance guy or the newbie broker or the Primerica rep than any experienced advisor. And as I have found out on here, most folks here have a bad experience that happened to them or a close friend that doesn't help............

BTW, I personally know 3 fee-only CFP's that have given up their practices because they are having a hard time finding clients. All of these folks have 10-15 years as a CFP under their belts. So the environment is not friendly to them either.

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Re: I'm starting to warm up to Index Funds
Old 11-14-2006, 05:35 PM   #76
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Re: I'm starting to warm up to Index Funds

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BTW, I personally know 3 fee-only CFP's that have given up their practices because they are having a hard time finding clients. All of these folks have 10-15 years as a CFP under their belts. So the environment is not friendly to them either.
I wish one of em was around here. I am interested in finding one......how do they market themselves?
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Re: I'm starting to warm up to Index Funds
Old 11-14-2006, 07:05 PM   #77
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Re: I'm starting to warm up to Index Funds

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I wish one of em was around here. I am interested in finding one......how do they market themselves?
word of mouth and networking mostly.

Try nafpa.com or fpa.com, they have search engines for CFPs. Sadly to say, I am not one yet, but am working on it. Had a transcript review from the CFP College in Denver, they said I could skip two parts of the course review because of all the extra coursework I took in college.........
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Re: I'm starting to warm up to Index Funds
Old 11-14-2006, 07:43 PM   #78
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Re: I'm starting to warm up to Index Funds

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BTW, I personally know 3 fee-only CFP's that have given up their practices because they are having a hard time finding clients. All of these folks have 10-15 years as a CFP under their belts. So the environment is not friendly to them either.

MY BIL is a fee only CFP and does planning on a PT basis.

Many of the potential clients are not real high net worth, require a lot of hand holding, and don't like paying for the service.

We used to have a CFP in our office to work with our succession planning department. It worked pretty good for us, but she decided that the bigger money was in law so she abandoned us for law school.

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Re: I'm starting to warm up to Index Funds
Old 11-14-2006, 08:49 PM   #79
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Re: I'm starting to warm up to Index Funds

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It's closer to 2 years now . . . just prior to my 38th birthday if you're keeping track.
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Re: I'm starting to warm up to Index Funds
Old 11-14-2006, 09:17 PM   #80
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Re: I'm starting to warm up to Index Funds

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word of mouth and networking mostly.

Try nafpa.com or fpa.com, they have search engines for CFPs.
Ok, the first link did not work and the second was SCARY AS *ELL!!!!.........lots of crap about brokering loans from home with a gazillion popups.....if THIS is how they are marketing themselves, no wonder they are thinking of doing something else......seeya gotta go run anti-spy utility.
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