Index Funds Pros and Cons

[haha]

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Originally Posted by FinanceDude Funny how we never have these discussions about insurance agents or attorneys on here..........I guess those are the "honorable professions"............

Are you sure you have been here long enough to say what we "never" have done?

Ha

[saluki9]

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Originally Posted by Hydroman In your opinion is Paul Merriman's advisory firm one of the good ones?

Hmmmmmm, I'd probably say no. Here is my reasoning

1. In his ADV he lists Charting and technical analysis as his primary asset allocation determinates. That sends shivers up my spine

2. He uses DFA funds which is a great thing, but he charges 1% off the top for buy and hold portfolios and OFFERS NO OTHER SERVICES

3. He has seminars, books, a website, etc. Being a good financial advisor is in some ways like being a good surgeon. You need to be available to your clients at all times, and your clients deserve nothing less than your full undivided attention. There is a reason the firm I work for hires PMs like myself. It's because actually advising the clients is a full time job so they hired me to do what the advisors can't or don't have time for. This guy seems like he has his hands in too many pots. In the ADV it says they can make accomodations to see you in person if you want. At our firm (and most good firms) if 2 months go by and you have not seen somebody from our company that would be very very rare.

[LOL!]

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Originally Posted by LOL! Is it not true that one can deduct only those expenses that exceed 2% of your AGI and then only if you itemize?* *If that's true, I hope I never even come close to paying 2% of AGI in management fees.

My question really did not get addressed yet ... there was a big side-step around it.

This is not unlike the idea that your fee to an accountant to prepare your tax-return is tax-deductible.* * TurboTax puts itself down on Schedule A as deductible, but then since you rarely reach the 2% floor for misc itemized deductions, that deduction is not counted.

I'll agree that if you get nickeled and dimed enough that these misc deductions add up, but that's still not a good use of money IMHO.

[FinanceDude]

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Originally Posted by HaHa Are you sure you have been here long enough to say what we "never" have done? Ha

No..............but you know that........... I guess I'll hang out at the woodshed by myself...............

[retire@40]

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Quote from: FinanceDude on September 26, 2006, 02:53:00 PM One more thing:* Management fees can be deducted on your taxes, commissions can not............

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Originally Posted by Martha Commissions are deducted from the sales price when determining your gain on the sale of the asset.

Management fees can only be deducted if your itemized deductions are higher than your standard deduction.* Some people can go their entire lives not being able to deduct management fees paid.

Commissions are always deductible in that commissions paid to acquire are added to the basis and commissions paid to sell are deducted from the gross sales.* Everyone that pays commissions such as these gets the deduction.

[mathjak107]

Dont forget looking at the top funds every year 6 or 7 of them out of 10 are all load funds. True whats on top one year may be the bottom the next but non the less when your on top your on top.
Nothing wrong with higher fund expenses or loads if you are getting something extra in return.

To make blanket statements about always picking lower cost funds isnt always true

[astromeria]

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Originally Posted by mathjak107 whats on top one year may be the bottom the next

And you don't know in advance which will be on top/bottom the following year. Not to mention that managed funds can have that end-of-year smack-down when they're out of losses to mitigate their gains.

[jazz4cash]

Has anyone ever noticed the differences in performance between index funds from various companies for the "same" Index? Many companies offer SP500 Index, but the performance can vary quite a few bp. If you check individual fund performance vs. the Index itself, the expenses make up the difference. I presume it also has to due with management style, cash required on hand for redemptions, etc. Vanguard and some Institutional funds are very close to the Index, reflecting thier low expenses. We have one in our 401k that routinely beats the Index! (pretty cool).

[FinanceDude]

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Originally Posted by jazz4cash Has anyone ever noticed the differences in performance between index funds from various companies for the "same" Index?* Many companies offer SP500 Index, but the performance can vary quite a few bp.* If you check individual fund performance vs. the Index itself, the expenses make up the difference.* I presume it also has to due with management style, cash required on hand for redemptions, etc.* *Vanguard and some Institutional funds are very close to the Index, reflecting thier low expenses.* We have one in our 401k that routinely beats the Index! (pretty cool).*

IMO, anyone outside of Vanguard offering a S&P 500 fund is doing it to keep their clients from going to Vanguard..........and their expenses are way out of line...........

I'll post the worst one I've found on here............gotta dig through some papers first................

[mickeyd]

I once worked for a firm that had an S&P 500 index fund in their 401(k) plan that had an ER of 1.56%!!! When I inquired why the ER was so high in comparison to other S&P500 funds, I was informed that the process that the MF company used to select the stocks in the fund was very complex and a "company secret" and this added to the expenses but generated a better return for the fund in the long run.

Seems like I recall that the total return was around 1.5% or so below the benchmark.

regards,
mickeyd

[FinanceDude]

Quote:

Originally Posted by mickeyd I once worked for a firm that had an S&P 500 index fund in their 401(k) plan that had an ER of 1.56%!!! When I inquired why the ER was so high in comparison to other S&P500 funds, I was informed that the process that the MF company used to select the stocks in the fund was very complex and a "company secret" and this added to the expenses but generated a better return for the fund in the long run. Seems like I recall that the total return was around 1.5% or so below the benchmark. regards, mickeyd

[JohnEyles]

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Originally Posted by FinanceDude IMO, anyone outside of Vanguard offering a S&P 500 fund is doing it to keep their clients from going to Vanguard...................

Does this apply to SPY ? As best i can tell, it is an ETF that follows the
S&P500, and has very low OER of 0.10%. Is there some reason not to
use it as my S&P500 index ?

[FinanceDude]

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Originally Posted by JohnEyles Does this apply to SPY ?* *As best i can tell, it is an ETF that follows the S&P500, and has very low OER of 0.10%.* *Is there some reason not to use it as my S&P500 index ?

Well............it is an ETF, not a fund. Fact is, there's huge volume in ETF's everyday in the market.

I was referring to mutual funds that track the S&P................

[JohnEyles]

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Originally Posted by FinanceDude Well............it is an ETF, not a fund.* Fact is, there's huge volume in ETF's everyday in the market. I was referring to mutual funds that track the S&P................

I just meant is SPY a reasonable alternative to an S&P500 index fund ?
I mostly understand how the ETFs and mutual funds differ. I'm in Schwab
and would rather pay $13 to buy the ETF than $50 to buy a Vanguard index
fund. Plus the SPY has lower OER. (Sure I could open a Vanguard account too).

[FinanceDude]

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Originally Posted by JohnEyles I just meant is SPY a reasonable alternative to an S&P500 index fund ? I mostly understand how the ETFs and mutual funds differ.* I'm in Schwab and would rather pay $13 to buy the ETF than $50 to buy a Vanguard index fund.* Plus the SPY has lower OER.* (Sure I could open a Vanguard account too).

I like SPY better than any S&P index fund, but that's a personal decision. There was a time when money could be made trading them, but those days seem in the rear view mirror.

Some of the other ETF's like Barclays have some interesting ones, and of course you can get wild with Diamonds, Cubes, and other jewelry...........

[JohnEyles]

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Originally Posted by FinanceDude I like SPY better than any S&P index fund ...

Why ? Just the wickedly low expenses, or are there other subtleties ?

[LOL!]

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Originally Posted by JohnEyles I just meant is SPY a reasonable alternative to an S&P500 index fund ?

Yes, SPY is a reasonable alternative. *We own it. *My spouse owns VFINX in an IRA.

If you were not worried about trading liquidity, then VTI has a 0.07% e.r. *And if available to you, VIIIX has an e.r. of 0.03%.

[LOL!]

Don't forget that with an ETF there is the bid/ask spread. With a mutual fund like VFINX, buying and selling occurs at the NAV, so there is no spread per se.

[FinanceDude]

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Originally Posted by LOL! Don't forget that with an ETF there is the bid/ask spread.* With a mutual fund like VFINX, buying and selling occurs at the NAV, so there is no spread per se.

Yeah, but it is traded like a stock..............whereas the VFINX is priced at 3:00 pm once a day..........

Also, I beleive Vanguard hits you hard if you try to sell their S&P funds more than once every 30 days..............

[d]

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Commissions are always deductible in that commissions paid to acquire are added to the basis and commissions paid to sell are deducted from the gross sales

commissions also reduce the net amount you have available to invest and hence the return on the total ... the tax impact will not offset that immediate loss