Join Early Retirement Today
Reply
 
Thread Tools Search this Thread Display Modes
Index Funds or Balanced Funds ?
Old 04-15-2004, 11:06 AM   #1
Recycles dryer sheets
 
Join Date: Oct 2003
Posts: 452
Index Funds or Balanced Funds ?

I know the theory behind index funds, but if you look at the performance of balanced funds (eg. Dodge & Cox Balanced and Vanguard Wellington) you will see that they perform very good, especially in bad markets.
During the bear market of 2000-2002, the D&C Balanced fund had only one negative year and that was only a negative 2.9%. The Vanguard S&P 500 Index fund lost money all three years - and lost big time !
So, wouldn't you sleep better with a good balanced fund - one with low expenses like the ones I've mentioned ?
__________________

__________________
renferme is offline   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!

Re: Index Funds or Balanced Funds ?
Old 04-15-2004, 12:01 PM   #2
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
cute fuzzy bunny's Avatar
 
Join Date: Dec 2003
Location: Losing my whump
Posts: 22,697
Re: Index Funds or Balanced Funds ?

Charlie has a similar thread going on.

Truth is, over 10-15 year periods in the rear view mirror, a handful of managed funds have kicked butt. Over longer periods the index funds catch up.

Those managed funds that did well might not do so well in the next 10-15 years though. The old "whats been hot wont be" or "chasing the return" seems to be a loser...at least in the long haul.

The vanguard and dodge and cox look particularly good for two reasons, with immediate history in mind. They focus on value/dividend bearing stocks rather than growth, which took a beating from 2000-2002. The stock index funds have to hold growth. And bonds did very well in that same time period. So both parts of these value+income funds had a good 3-5 years.

The crux though is usually the big difference in expenses between index and managed funds. The vanguard ones in admiral shares can be had at expenses rivalling stripped down indexes, and the dodge and cox is just above .5%. Sort of removes at least some of the difference.

I think they're good choices for people who just cant swallow the index fund mantra, because the low expense rate, good asset allocation, and good long term records give them a big edge over other managed funds and slim down the index funds long term advantage.
__________________

__________________
Be fearful when others are greedy, and greedy when others are fearful. Just another form of "buy low, sell high" for those who have trouble with things. This rule is not universal. Do not buy a 1973 Pinto because everyone else is afraid of it.
cute fuzzy bunny is offline   Reply With Quote
Re: Index Funds or Balanced Funds ?
Old 04-20-2004, 11:16 AM   #3
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: 5,881
Re: Index Funds or Balanced Funds ?

If a balanced fund helps you sleep better, then that is the fund for you! I like the TSM and the balanced fund my self. THe Vanguard total Balanced fund has about 40% bonds but TSM has no bonds and is thus more volitile. No big secret here, just 2 diferent ways to invest.
mickeyd

Two termites walk into a bar. One asks, "Is the bar tender here?"
__________________
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
Re: Index Funds or Balanced Funds ?
Old 04-20-2004, 03:06 PM   #4
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
 
Join Date: Jul 2003
Location: Kansas City
Posts: 7,408
Re: Index Funds or Balanced Funds ?

Dodge and Cox Balanced and Wellington are from the 1930's. IBM had 'tabulating machines'. Think of balanced index as the modern version of the same thing. I think Wellesley showed up in the 60's? In a broad sense they perform in a similar manner - hand grenade wise.
__________________
unclemick is offline   Reply With Quote
Re: Index Funds or Balanced Funds ?
Old 04-20-2004, 05:15 PM   #5
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
cute fuzzy bunny's Avatar
 
Join Date: Dec 2003
Location: Losing my whump
Posts: 22,697
Re: Index Funds or Balanced Funds ?

Yep, wellington showed up right around the time of the great depression and is a 60/40 stock/bond mix favoring value stocks and high quality intermediate term bonds. Wellesley started around 1970 and is a 40/60 mix of the same.
__________________
Be fearful when others are greedy, and greedy when others are fearful. Just another form of "buy low, sell high" for those who have trouble with things. This rule is not universal. Do not buy a 1973 Pinto because everyone else is afraid of it.
cute fuzzy bunny is offline   Reply With Quote
Re: Index Funds or Balanced Funds ?
Old 04-20-2004, 05:21 PM   #6
Full time employment: Posting here.
 
Join Date: Oct 2003
Posts: 961
Re: Index Funds or Balanced Funds ?

There's nothing all that unknown about characteristics of good non-index funds. Those that are good and last over decades all seem to have:

1) low expenses
2) low turnover (low commissions and spreads)
3) low style drift
4) Team Management

There is nothing particularly special about index funds. It's the costs of the funds that matters. That's what makes index funds so special. I might actually consider DODBX and VWELX Large value index balanced funds. After all, index funds are simply passively managed funds.

Now, let's look at the 1973-1974 bear market:

Dodge and Cox balanced returned -9.7% in 1973, and -19.3% in 1974. A combo of 60% S&P 500 and 40% 5 Yr Treasuries returned -7.0% in 1973, and -13.6% in 1974. Even if we use Long Term gov't bonds (instead of 5 yr Treasuries), we get a return of -9.2% in 1973 and -14.1% in 1974.

A 60/40 mix of Large Value and 5 Yr Treasuries returned 1.7% [positive]in 1973, and -13.0% in 1974. If we use LT gov't bonds, we get a return of -0.6% in 1973 and -13.5% in 1974.

[** LV and bond return data curteousy of Gummy]

And if we look at 2000-2002, DODBX and VWELX look to have performed a lot like mixes of LV/MV and int term bonds [like the Lehman Bros Agg index]. Granted, these two funds have beaten relevant value/bond benchmarks, but not by all that much. If you're looking for value balanced funds, either one of these should do perfectly.

- Alec
__________________

__________________
ats5g 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
Allocation and Index funds? Breitling FIRE and Money 2 04-21-2007 08:48 PM
My 401k's expense ratios, Bogle, lowest-cost quartile data for stock funds? Dude FIRE and Money 19 02-07-2007 02:17 PM
Index funds beat most active funds JustCurious FIRE and Money 57 10-23-2006 12:14 PM
Balanced Index Investing? charlie FIRE and Money 17 04-28-2004 01:39 PM
Vanguard Index Funds Moving From S&P To MSCI BigMoneyJim Other topics 5 05-18-2003 04:21 AM

 

 
All times are GMT -6. The time now is 02:56 AM.
 
Powered by vBulletin® Version 3.8.8 Beta 1
Copyright ©2000 - 2017, vBulletin Solutions, Inc.