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Re: Recommended Low Cost Index Fund
Old 09-02-2004, 06:30 PM   #21
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Re: Recommended Low Cost Index Fund

Note that VAAPX's investment strategy is

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Investment strategy

- The fund invests in common stocks, long-term U.S. Treasury bonds, and money market instruments (cash investments). The mix, or allocation, of the three types of assets changes from time to time depending on which mix appears to offer the best combination of expected returns and risk. Although the fund normally invests in two or more of the three asset types, it may at any time place all of its assets in one type—stocks, bonds, or cash. To accomplish changes in allocations quickly and cost-effectively, the fund may use futures contracts instead of buying and selling individual securities.

- In evaluating the attractiveness of common stocks versus bonds or cash, the advisor uses a "dividend-discount" model that estimates the expected return of the Standard & Poor's 500 Composite Stock Price Index based on forecasts of earnings by the 500 companies whose stocks make up the index. The advisor assumes that the future returns on bonds will equal the current yield to maturity of long-term, high-quality, corporate bonds. The expected returns on cash are estimated using the current yield on three-month certificates of deposit and a long-term forecast of inflation. The advisor also estimates the future volatility of returns, largely based on past fluctuations for each asset class. The advisor's proprietary computer model uses the return and volatility estimates to establish the fund's allocation.
On page 15 of the Prospecuts for the Life Strategy funds, Moderate Growth's target allocation is 60% stocks 40% bonds. However, b/c of the AA fund, the stock portion can range from 45-70%, the bond portion can range from 30%-55%, and the MM portion can range from 0%-25%, depending on how the AA fund is allocated.

Just glancing [quickly] at the returns for the LS funds, in 1999, the LS funds trailed their benchmark (comprise of W 5000, EAFE, and LBA bond index), as the AA probably moved money from stocks to bonds. And in 2000, the LS funds beat their benchmarks b/c the AA fund wasn't all in stocks. Good call so far. But in 2002, when the LS funds trailed their benchmarks, it was probably b/c the AA fund was fully invested in stocks, bringing for example the bond allocation for the LS mod fund down to 30%, as opposed to the benchmarks 40%. And then in 2003, the LS mod fund beat its benchmark b/c the AA fund was most likely fully invested in stocks.

I suppose if you're like me and BMJ, and you want to keep a stock/bond ratio constant, I'd go with the LS funds. And if you want the stock/bond ratio to decline as you get older, go with the TR funds. I was also thinking about splitting my funds b/c Wellington (IRA) and LS mod (401(k)), and then using wife's TSP for more int'l and bond (just rebalancing back to 40% G fund and 60% I fund). At least I won't ever have to rebalance 2 of the 3 accounts, and I'd get a value tilt without a lot of the extra fees/minimums. Now, if my 401(k) nazis would ever add a REIT fund, or when I've got enough money in the IRA to add REIT, I'd be in heaven. I think I'd add REIT before small caps b/c I think that REITs are better diversifiers.

- Alec
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Re: Recommended Low Cost Index Fund
Old 09-03-2004, 04:28 AM   #22
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Re: Recommended Low Cost Index Fund

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Now, if my 401(k) nazis would ever add a REIT fund, or when I've got enough money in the IRA to add REIT, I'd be in heaven.
I wish I had your 401k nazis. My company uses Merrill Lynch. Argggg!!

I contacted the plan administrator at headquarters to complain about the 14 only actively managed high cost funds that were offered & he replied saying the board reviews & moniters funds it feels can outperform the S&P500. My reply noted to him that none of the funds they chose has beaten the index and provided numbers to support. I never heard back...
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Re: Recommended Low Cost Index Fund
Old 09-03-2004, 04:35 AM   #23
 
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Re: Recommended Low Cost Index Fund

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moniters funds it FEELS can outperform the S&P500. *My reply noted to him that none of the funds they chose has beaten the index and provided numbers to support. *I never heard back... * *
See the key word here is FEELS - Your board Feels this way and the Money Managers all Feel that they can beat the S&P 500 - But the facts rarely add up as you pointed out!
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Re: Recommended Low Cost Index Fund
Old 10-01-2004, 11:25 AM   #24
 
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Re: Recommended Low Cost Index Fund

FInd a low cost advisor and get into DFA funds, the tilt to value and small, harvest tax losses, you should exceed the total market portfolio in the long run
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Re: Recommended Low Cost Index Fund
Old 10-02-2004, 10:15 AM   #25
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Re: Recommended Low Cost Index Fund

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actively managed high cost funds that were offered & he replied saying the board reviews & moniters funds it feels can outperform the S&P500. *
Maybe the "board" should read a Bogle book or two so that they will realize what a silly idea it is that any managed mutual fund can beat the market (index funds) over the long term.
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C'mon, MickeyD, quit trolling.
Old 10-02-2004, 10:59 AM   #26
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C'mon, MickeyD, quit trolling.

There are funds that have beaten the S&P500 over the "long term" (whatever that is). I agree that not just any fund can do it, but there are funds that have done it.

I don't think it's "silly" to be invested in a fund like that. Profitable, yes, but not "silly".

Finding the funds that WILL beat the S&P500 is another problem entirely, worthy of many books.

I think Bogle's points are well made and his message is distorted by your post. Most investors won't spend the time or trouble to find ways to beat the indices, and those investors are better off with index funds.

But those investors who learn & work at investing will profit. "The harder they work, the luckier they get", but it can be done. I won't try to claim that the lifestyle is worth the rewards, but it's achievable.

Now go congratulate yourself that you don't have to work as hard as some of us for your market returns. But don't patronize or make fun of those who do, or of those who may have the potential to become the next Buffett.
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Re: Recommended Low Cost Index Fund
Old 10-04-2004, 03:24 PM   #27
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Re: Recommended Low Cost Index Fund

Tommy,

Your name says it all. Listen to uncle mick, and do little, except perhaps add 10% VGSIX, Vanguard's REIT Index. Wish I had continued along those lines myself -- I'd be wealthier. Also, avoid getting bitten by the prancing horse.

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Re: Recommended Low Cost Index Fund
Old 10-04-2004, 05:53 PM   #28
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Re: Recommended Low Cost Index Fund

Tongue in cheek wise - back in 98 added 10% VGSIX after reading Bernstein - promptly got hosed by Mr Market, hung on - 'don't just stand there, do nothing' - per Bogle and let the Vanguard computers rebalance the balanced index (Lifestrategy moderate).

How's that for name dropping? - heh, heh, heh.
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