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Old 03-14-2016, 05:52 PM   #21
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Me switching over seems pretty good. What implications am I not considering here?
For starters you are comparing two years at what may include the end of a powerful bull market to six years of participation in that bull market. You must compare time periods, exactly. This is investing 101. Run from anybody who doesn't understand that comparing returns from different time periods is misleading.
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Old 03-14-2016, 06:16 PM   #22
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You see it everywhere, "Past performance does not necessarily predict future results." Simple as that, IMO.
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Old 03-14-2016, 06:49 PM   #23
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No magic needed. A simple S&P 500 fund returned 13% per year over the last 6 years.
More like 12.2% for VFIAX for 3/14/2010 to 3/13/2016 with dividends reinvested. However, VIGAX was 13.5% for the same period.
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Old 03-14-2016, 07:07 PM   #24
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Cool. The 13% was 6 years ending 12/31/15 with dividends reinvested.
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Old 03-14-2016, 07:11 PM   #25
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Sorry, I typed it wrong and fixed it above.
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Old 03-14-2016, 07:47 PM   #26
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Had another chat with my friend. He kind of backed off his initial claims stating he got the market rebound mixed in with his contributions mixed in with his dividends/capital gains. He also said his holdings were in an asset management account.

His basis was he started with $130K in principal back in 2009, and now the total value is $243K. He contributes $1800 a year. So his math was ($243K-$130K)/7 years = $16142 a year in returns. Is this math correct?
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Old 03-14-2016, 08:14 PM   #27
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Had another chat with my friend. He kind of backed off his initial claims stating he got the market rebound mixed in with his contributions mixed in with his dividends/capital gains. He also said his holdings were in an asset management account.

His basis was he started with $130K in principal back in 2009, and now the total value is $243K. He contributes $1800 a year. So his math was ($243K-$130K)/7 years = $16142 a year in returns. Is this math correct?
Of course not. Contributions are not returns. The Beardstown Ladies tried that trick. They did sell a lot of books until they were called out..

Bottom line, do whatever the heck you want. It's your money, not ours, nor your friend's. But since you asked us, a 6 year comparison vs 2 year is not at all valid.
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Old 03-14-2016, 08:18 PM   #28
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Got into a discussion with a friend about index funds versus aggressive growth funds. ... He says despite the high expense ratios and the annual $1K in fees his returns are justifiable. He thinks I should make the switch from my Vanguard stuff to his stuff. ...
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Had another chat with my friend. ...

His basis was he started with $130K in principal back in 2009, and now the total value is $243K. He contributes $1800 a year. So his math was ($243K-$130K)/7 years = $16142 a year in returns. Is this math correct?
His math is wrong, he isn't accounting for the added funds (and the growth of those funds over the investment time frame). But regardless, you now have enough information to officially tell your friend his investments SUCK. What's he thinking?

If you invested in SPY in 2009, even w/o the $1800/year additions, you would have blown him out of the water. Here's the math, and the references:

SPY Historical Prices | SPDR S&P 500 Stock - Yahoo! Finance

SPY Mar 13, 2009 $65.83 (adjusted close, accounts for reinvest of divs/distributions)
SPY Mar 14, 2016 $202.50

So... 202.50/65.83 = 3.0761051

$130,000 (original investment) times 3.0761051 = $399,893.66

Beats the cr@p out of his $243,000, even without $1,800 times 7 years, a not insignificant $12,600.

Now, be careful how you present this. You want to teach him something, not pi$$ him off.

But do let us know his reaction.

-ERD50
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Old 03-14-2016, 09:56 PM   #29
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If you invested in SPY in 2009, even w/o the $1800/year additions, you would have blown him out of the water. Here's the math, and the references:

SPY Historical Prices | SPDR S&P 500 Stock - Yahoo! Finance

SPY Mar 13, 2009 $65.83 (adjusted close, accounts for reinvest of divs/distributions)
SPY Mar 14, 2016 $202.50

So... 202.50/65.83 = 3.0761051

$130,000 (original investment) times 3.0761051 = $399,893.66

Beats the cr@p out of his $243,000, even without $1,800 times 7 years, a not insignificant $12,600.
Now, let's be fair. You're only looking at the returns that the friend could have gotten. Maybe his friend isn't selfish--his decision to invest in those "special" funds provided income for his broker/advisor, the folks that work at the high expense funds, the folks that maintain their homes and cars, etc. Gotta "spread the money around" as they say. Sure, the friend could have had $150K more in his account right now, but let's think about the greater good.
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Old 03-14-2016, 10:19 PM   #30
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...His basis was he started with $130K in principal back in 2009, and now the total value is $243K. He contributes $1800 a year. So his math was ($243K-$130K)/7 years = $16142 a year in returns. Is this math correct?
=RATE(7,-1800,-130000,243000) = 8.28% Not so hot.

Meanwhile, if he had just invested $130k in VFIAX on 3/14/2009 (about the bottom) and forgot about contributions and reinvested dividends his investment would be worth $402,756 today, a 17.5% annual return.

So he earned about 1/2 of what the "boring" index fund returned (albeit for an unusual period of time in that it was right into the rally from the great recession).

 BoY8.28% ReturnContbEoY
1 130,000 10,764 1,800 142,564
2 142,564 11,804 1,800 156,168
3 156,168 12,931 1,800 170,899
4 170,899 14,150 1,800 186,849
5 186,849 15,471 1,800 204,121
6 204,121 16,901 1,800 222,822
7 222,822 18,450 1,800 243,071
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Old 03-14-2016, 11:04 PM   #31
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Some backtesting from Jan 2009:
https://www.portfoliovisualizer.com/...Percentage=0.0

Even VSMGX with drag of 40% bonds and international equities did better.

Edit: Here's backtesting from Mar 2009 bottom.
https://www.portfoliovisualizer.com/...lAmount=130000
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Old 03-14-2016, 11:10 PM   #32
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OP, when you share these results with him make sure to have a box of kleenex handy. He'll need it.
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Old 03-14-2016, 11:19 PM   #33
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OP, when you share these results with him make sure to have a box of kleenex handy. He'll need it.
Offer to go with him when he visits his "advisor." Thank goodness he spent the money to get professional advice.
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Old 03-15-2016, 01:04 AM   #34
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Offer to go with him when he visits his "advisor." Thank goodness he spent the money to get professional advice.
Personally, I wouldn't meddle. His money, his decision. Wouldn't want to get blamed if his portfolio goes down due to temporary market volatility. Only thing I'd do is give a copy of William Bernstein's "If You Can". If people still decide to pay for loads and AUM to their FA after reading it, then that's their choice.
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Old 03-15-2016, 04:31 AM   #35
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Well, it does seem friend has an open mind with going back and correcting his numbers.

So the conversation might turn around after all.

Who knows, said friend might end up here thanking us
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Old 03-15-2016, 08:42 PM   #36
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Thanks for the input, everybody. I own VTSAX, VTSMX, VEXRX, VTIAX, VGSLX. I learned a lot from the math examples. Thank you very much! I will apply that to my numbers and see the result.

As for my friend, I will give him the bad news, but the math is the strong supporting evidence and will really change his mind. He admitted to paying sky-high expense ratios. On top of that he's paying a 1% annual asset management fee. He thought it was worth it. I always knew that it wasn't but didn't understand the math behind forming a convincing argument until now.
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Old 03-15-2016, 09:47 PM   #37
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I think we are still curious to know what specific investments the FA has sold to your friend. After all if they are plain ol mutual funds, the FA isn't bringing any value. An FA needs to offer something exotic and I bet your friend doesn't even know what he has. I agree it may be a sensitive issue and he or FA may reject the math.


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Old 03-16-2016, 10:22 AM   #38
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Non index will do better some of the time. Over many years the higher fees, turnover, and higher volatility will work against you. I have tried lots of things over 35 years and I am nearly all index now.
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Old 03-16-2016, 09:21 PM   #39
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My friend gave me a listing of his funds. They are in this portfolio labeled AMS funds. This listing is long:

1) Fidelity Advisor New Insights Fund Class I 1604
2) Oakmark International Small-Cap Fund 8509
3) My Asset Strategy Fund Class I 1864
4) Loomis Sayles Bond Fund Institutional Class 5840
5) Metropolitan West Total Return Bond Fund Class I 5509
6) Franklin Mutual Global Discovery Fund Class Z 0404
7) PIMCO Total Return Fund Class P M552
8) Principal Diversified Real Asset Fund Class P L886
9) Royce Total Return Fund Investment Class 5881
10) Scout Unconstrained Bond Fund Class I
11) Templeton Global Bond Fund Advisor Class
12) AMG Yacktman Fund Service Class
13) FPA Crescent Portfolio
14) Fidelity Advisor Mid Cap II Fund Class I
15) Fidelity Spartan 500 Index Fund Investor Class

Those are the funds. There are also direct holdings in commodities, stocks, and metals that he didn't list.
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Old 03-16-2016, 09:32 PM   #40
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Way too complicated for me. I'm guessing that he has more tickers than I have had in my lifetime. Has he ever used M*'s Instant X-Ray tool to assess his portfolio?
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