Join Early Retirement Today
Reply
 
Thread Tools Search this Thread Display Modes
Indexing - Buy the basket yourself?
Old 08-03-2015, 01:31 PM   #1
Thinks s/he gets paid by the post
 
Join Date: Feb 2014
Posts: 1,050
Indexing - Buy the basket yourself?

With the rise of brokers who can do trades for extremely low commissions why not buy the actual stocks in an index? The advantages include granular control of tax loss/gain harvesting, no worry about capital gain distributions. Also no fund risk - the managers take everyone's funds and disappear. A substantial portfolio would be needed and it requires some work without a program to place the orders but it might be worthwhile.

Any thoughts on this approach?
__________________

__________________
jim584672 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!

Old 08-03-2015, 02:11 PM   #2
Thinks s/he gets paid by the post
frayne's Avatar
 
Join Date: Oct 2002
Location: 19th Hole
Posts: 2,529
Too much work for an old retired fart like myself.
__________________

__________________
A totally unblemished life is only for saints.
frayne is offline   Reply With Quote
Old 08-03-2015, 02:14 PM   #3
Moderator Emeritus
aja8888's Avatar
 
Join Date: Apr 2011
Location: The Woodlands, TX
Posts: 7,156
Quote:
Originally Posted by jim584672 View Post
With the rise of brokers who can do trades for extremely low commissions why not buy the actual stocks in an index? The advantages include granular control of tax loss/gain harvesting, no worry about capital gain distributions. Also no fund risk - the managers take everyone's funds and disappear. A substantial portfolio would be needed and it requires some work without a program to place the orders but it might be worthwhile.

Any thoughts on this approach?
A lot of folks do just this with a hand picked basket of stocks. Mulligan here has a portfolio of preferreds that pay high dividends. Some of your most successful mutual funds have less than 30 stocks in them (Oakmark is one). You just have to be diligent and spend time monitoring your stocks if you want to do this successfully.
__________________
......."Everybody has a plan until they get punched in the face." -- philosopher Mike Tyson.
aja8888 is offline   Reply With Quote
Old 08-03-2015, 02:17 PM   #4
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
audreyh1's Avatar
 
Join Date: Jan 2006
Location: Rio Grande Valley
Posts: 16,466
Quote:
Originally Posted by frayne View Post
Too much work for an old retired fart like myself.
+300!
__________________
Well, I thought I was retired. But it seems that now I'm working as a travel agent instead!
audreyh1 is online now   Reply With Quote
Old 08-03-2015, 02:29 PM   #5
Thinks s/he gets paid by the post
 
Join Date: Jul 2005
Posts: 3,862
An index fund can probably do it much more cheaply, and stay up with any changes. I'd hate to replicate the S&P 500. Just imagine trying to reinvest $1000 in dividends evenly into 500 individual stocks.
__________________
Animorph is offline   Reply With Quote
Old 08-03-2015, 02:53 PM   #6
Thinks s/he gets paid by the post
 
Join Date: Feb 2014
Posts: 1,050
Interactive Brokers has a minimum commission of $1.00 a trade. A few shares each, of say 100 stocks would only be $100 for a whole portfolio. Nothing can beat this from a cost view. Especially since expenses of ETFs are ongoing every year.
__________________
jim584672 is offline   Reply With Quote
Old 08-03-2015, 03:12 PM   #7
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
REWahoo's Avatar
 
Join Date: Jun 2002
Location: Texas Hill Country
Posts: 42,103
Quote:
Originally Posted by jim584672 View Post
... why not buy the actual stocks in an index? The advantages include granular control of tax loss/gain harvesting, no worry about capital gain distributions.
Why not go for it? Let us know how it works out, both in terms of time and costs.
__________________
Numbers is hard

When I hit 70, it hit back

Retired in 2005 at age 58, no pension
REWahoo is offline   Reply With Quote
Old 08-03-2015, 03:13 PM   #8
Thinks s/he gets paid by the post
target2019's Avatar
 
Join Date: Dec 2008
Posts: 3,708
I think you could get by with less than 50 companies. But you would have to monitor and manage the basket. I am building and watching a 35-company portfolio, and it takes time. The monthly statement is 20 pages. I bought a hi-capacity shredder so I can dispose of it in 10 seconds or less.
__________________
target2019 is online now   Reply With Quote
Old 08-03-2015, 03:34 PM   #9
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
pb4uski's Avatar
 
Join Date: Nov 2010
Location: Vermont & Sarasota, FL
Posts: 16,427
Why in the world would I go through all that work to save 0.05%? Not to mention how complicated my tax return would get. No thanks, I have much better things to do with my time.
__________________
If something cannot endure laughter.... it cannot endure.
Patience is the art of concealing your impatience.
Slow and steady wins the race.
pb4uski is offline   Reply With Quote
Old 08-03-2015, 03:37 PM   #10
Thinks s/he gets paid by the post
gauss's Avatar
 
Join Date: Aug 2011
Posts: 1,709
Might be feasible if you plan to take the dividends and not reinvest them.

-gauss
__________________
gauss is offline   Reply With Quote
Old 08-03-2015, 03:46 PM   #11
Thinks s/he gets paid by the post
photoguy's Avatar
 
Join Date: Jun 2010
Posts: 2,301
Quote:
Originally Posted by Animorph View Post
An index fund can probably do it much more cheaply, and stay up with any changes. I'd hate to replicate the S&P 500. Just imagine trying to reinvest $1000 in dividends evenly into 500 individual stocks.
I was doing a search on Vanguard and securities lending and discovered that for some funds, the extra earnings covers the expense ratio. E.g. the following article claims that "The Vanguard Small Cap ETF (VB) has historically eliminated its costs with securities lending"

How Securities Lending Makes Some ETFs Free - Forbes

As of today VB (vanguard's small cap ETF) expense ratio is 0.09%.

Granted there is some additional risk (to securities lending) but it doesn't seem worth the effort to self index. There are probably multiple other ways Vanguard (and large fund companies) can implement it way cheaper than one could do it themselves.
__________________
photoguy is offline   Reply With Quote
Old 08-03-2015, 03:53 PM   #12
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
 
Join Date: May 2004
Posts: 11,615
Quote:
Originally Posted by aja8888 View Post
Some of your most successful mutual funds have less than 30 stocks in them (Oakmark is one).
Having a small number of stocks is among the best ways to produce outstanding returns. And, it's a great way to get returns that are well below average.

In some past market environments, a disproportionately large amount of the S&P 500 gains were due to just a few stocks. Picking a small number of stocks improves the chance of missing a "fair share" of the standouts, or of maybe getting an extra serving.

Most of us don't need to swing for the fences--getting consistent singles is enough.
__________________
"Freedom begins when you tell Mrs. Grundy to go fly a kite." - R. Heinlein
samclem is online now   Reply With Quote
Old 08-03-2015, 04:14 PM   #13
Thinks s/he gets paid by the post
 
Join Date: Feb 2014
Posts: 1,050
For the S&P 100 (OEX) with $100,000...

TICKER | SHARES | DOLLARS
AAPL | 48 | $6,020.64
MSFT | 67 | $2,958.05
XOM | 35 | $2,912.00
BRK.B | 20 | $2,722.20
WFC | 43 | $2,418.32
JNJ | 23 | $2,241.58
GE | 83 | $2,205.31
JPM | 31 | $2,100.56
FB | 23 | $1,972.71
WMT | 27 | $1,915.11
AMZN | 4 | $1,736.36
PG | 22 | $1,721.28
PFE | 51 | $1,710.03
GOOGL | 3 | $1,620.12
DIS | 14 | $1,597.96
VZ | 34 | $1,584.74
GOOG | 3 | $1,561.53
CVX | 16 | $1,543.52
T | 43 | $1,527.36
BAC | 87 | $1,480.74
ORCL | 36 | $1,450.80
KO | 36 | $1,412.28
GILD | 12 | $1,404.96
C | 25 | $1,381.00
V | 20 | $1,343.00
MRK | 23 | $1,309.39
IBM | 8 | $1,301.28
CMCSA | 21 | $1,262.94
HD | 11 | $1,222.43
INTC | 39 | $1,186.38
CSCO | 42 | $1,153.32
PEP | 12 | $1,120.08
PM | 13 | $1,042.21
UNH | 8 | $976.00
SLB | 11 | $948.09
CVS | 9 | $943.92
ABBV | 14 | $940.66
BMY | 14 | $931.56
AMGN | 6 | $921.12
AGN | 3 | $910.38
MDT | 12 | $889.20
MA | 9 | $841.32
GS | 4 | $835.16
BA | 6 | $832.32
QCOM | 13 | $814.19
CELG | 7 | $810.18
BIIB | 2 | $807.88
MO | 16 | $782.56
UTX | 7 | $776.51
MMM | 5 | $771.50
MCD | 8 | $760.56
WBA | 9 | $759.96
NKE | 7 | $756.14
LLY | 9 | $751.41
KMI | 18 | $691.02
AIG | 11 | $680.02
UPS | 7 | $678.37
UNP | 7 | $667.59
USB | 15 | $651.00
SBUX | 12 | $643.44
AXP | 8 | $621.76
MS | 16 | $620.64
COP | 10 | $614.10
TWX | 7 | $611.87
HON | 6 | $611.82
EBAY | 10 | $602.40
ABT | 12 | $588.96
LMT | 3 | $557.70
FOXA | 17 | $553.35
COST | 4 | $540.24
LOW | 8 | $535.76
MDLZ | 13 | $534.82
SPG | 3 | $519.06
DOW | 10 | $511.70
MET | 9 | $503.91
F | 33 | $495.33
ACN | 5 | $483.90
OXY | 6 | $466.62
TXN | 9 | $463.59
CL | 7 | $457.87
HPQ | 15 | $450.15
DD | 7 | $447.65
COF | 5 | $439.85
GM | 13 | $433.29
MON | 4 | $426.36
GD | 3 | $425.07
CAT | 5 | $424.10
EMC | 16 | $422.24
TGT | 5 | $408.15
BK | 9 | $377.73
BAX | 5 | $349.65
FDX | 2 | $340.80
SO | 8 | $335.20
EMR | 6 | $332.58
APC | 4 | $312.24
HAL | 7 | $301.49
RTN | 3 | $287.04
NSC | 3 | $262.08
EXC | 7 | $219.94
ALL | 3 | $194.61
DVN | 3 | $178.47
$100,176.34
__________________
jim584672 is offline   Reply With Quote
Old 08-03-2015, 04:43 PM   #14
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
pb4uski's Avatar
 
Join Date: Nov 2010
Location: Vermont & Sarasota, FL
Posts: 16,427
To me , simple is better.

While I'm not aware of a S&P 100 index fund, the S&P 500 index fund would cost you $50/year on that $100k. For discussion purposes, let's say the return is the same. Is it worth the hassle of having the above portfolio, accounting for it and dividends and rebalancing, etc for $50 a year? Besides, the $50/year is partially offset by securities lending and the like that is not really feasible for an individual to do.
__________________
If something cannot endure laughter.... it cannot endure.
Patience is the art of concealing your impatience.
Slow and steady wins the race.
pb4uski is offline   Reply With Quote
Old 08-03-2015, 05:13 PM   #15
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
Mulligan's Avatar
 
Join Date: May 2009
Posts: 7,379
Quote:
Originally Posted by aja8888 View Post
A lot of folks do just this with a hand picked basket of stocks. Mulligan here has a portfolio of preferreds that pay high dividends. Some of your most successful mutual funds have less than 30 stocks in them (Oakmark is one). You just have to be diligent and spend time monitoring your stocks if you want to do this successfully.

I feel very comfortable doing this with preferred stocks, over a preferred stock index because they have to buy the dogs with fleas and cannot focus on the safe higher yielding small issue illiquids. As you know buying them yourself Aja, we are just looking for higher yielding safe ones.
But in the common stock arena, I don't feel I would do any better trying to pick "the best common stocks" in an index fund and then counting on beating the average. In fact I am more willing to bet I would pick the wrong ones and underperform. That is probably why the only common stock I own is in the Total Stock Index.


Sent from my iPad using Tapatalk
__________________
Mulligan is offline   Reply With Quote
Old 08-03-2015, 05:32 PM   #16
Thinks s/he gets paid by the post
target2019's Avatar
 
Join Date: Dec 2008
Posts: 3,708
Take 100K and divide it into two portions.
- 75% Wellesley
- 25% Stock brokerage

Examine the companies held by Wellesley. Find companies not held by Wellesley that you feel will pay a growing dividend and buy those at good value.

Each quarter remove one half the dividends and purchase more shares of Wellesley.

Enjoy the other half of your dividends by eating and drinking as much as you can afford.
__________________
target2019 is online now   Reply With Quote
Old 08-03-2015, 10:56 PM   #17
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
 
Join Date: Sep 2005
Location: Northern IL
Posts: 18,266
Quote:
Originally Posted by jim584672 View Post
For the S&P 100 (OEX) with $100,000...

TICKER | SHARES | DOLLARS
AAPL | 48 | $6,020.64

.
.
.

DVN | 3 | $178.47
$100,176.34
So after buying 50-100 of the S&P500, I think you have some risk of not tracking within the 0.09% expenses they charge for SPY.

And you would likely need to re-balance from time to time - that would be a nightmare, I'd think. And it would cost something. The funds can do that as people move in/out.

Yes, I've thought about it from time to time, then I go back to whatever I was doing.

-ERD50
__________________
ERD50 is online now   Reply With Quote
Old 08-04-2015, 12:44 AM   #18
Thinks s/he gets paid by the post
Sunset's Avatar
 
Join Date: Jul 2014
Location: Chicago
Posts: 4,727
Years ago I had the same idea, and I recall reading that to come close to the performance of some index. You only needed a relatively small number of stocks about 15-20.

The idea was you buy the 15-20 stocks that make up the majority of the index and that accounts for most of the index action.

I don't know if its true, but I did go on to purchase various stocks and learned the value of harvesting gains and losses on the individual stocks, while my index etf could not do any of that since it is a mix of many.

I have come to the conclusion for myself, that I will over time convert my individual stocks to index etf's as the broader mix means no black swans.

One of my individual stocks was JOY, as it was individual I'd sell covered calls on it to pump up the dividend and eventually let it go as coal weakened, now it is 1/2 of what I sold it for. But my broad etf's are not hurt by coal's demise.

Wish I had done that for my CAT
__________________
Sunset is offline   Reply With Quote
Old 08-04-2015, 09:05 AM   #19
Thinks s/he gets paid by the post
photoguy's Avatar
 
Join Date: Jun 2010
Posts: 2,301
Here's what Bernstein says about how many stocks you need to diversify properly:

Quote:
To be blunt, if you think that you can do an adequate job of minimizing portfolio risk with 15 or 30 stocks, then you are imperiling your financial future and the future of those who depend on you. The reason is simple: There are critically important dimensions of portfolio risk beyond standard deviation. The most important is so-called Terminal Wealth Dispersion (TWD). In other words, it is quite possible (in fact, as we shall soon see, quite easy) to put together a 15-stock or 30-stock portfolio with a very low SD, but whose lousy returns will put you in the poorhouse.
Quote:
The reason is simple: a grossly disproportionate fraction of the total return came from a very few "superstocks" like Dell Computer, which increased in value over 550 times. If you didn’t have one of the half-dozen or so of these in your portfolio, then you badly lagged the market. (The odds of owing one of the 10 superstocks are approximately one in six.) Of course, by owning only 15 stocks you also increase your chances of becoming fabulously rich. But unfortunately, in investing, it is all too often true that the same things that maximize your chances of getting rich also maximize your chances of getting poor.
The 15-Stock Diversification Myth

He has a nice histogram in the article showing how it's very easy to lag the index with small baskets.
__________________
photoguy is offline   Reply With Quote
Old 08-04-2015, 11:57 PM   #20
Thinks s/he gets paid by the post
Sunset's Avatar
 
Join Date: Jul 2014
Location: Chicago
Posts: 4,727
Well, after reading the Bernstein link, I'm really glad I came to the conclusion to phase into etf's.

Perhaps I will phase in faster now...
__________________

__________________
Sunset 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
Alternatives to indexing (alternatives to cap weighted indexing) jIMOh FIRE and Money 7 08-31-2010 09:52 PM
Eggs in one meta-basket? Ameriprise all bad? mickeymao FIRE and Money 73 04-23-2010 12:44 PM
"All your eggs in one basket?" Midpack FIRE and Money 14 12-20-2008 07:18 AM
Laundry system: hamper, basket, or just a big pile? free4now Other topics 53 12-07-2008 08:00 AM
Eggs in one basket? teejayevans FIRE and Money 28 03-18-2007 09:08 PM

 

 
All times are GMT -6. The time now is 05:09 PM.
 
Powered by vBulletin® Version 3.8.8 Beta 1
Copyright ©2000 - 2017, vBulletin Solutions, Inc.