Growth of Index Funds

[NW-Bound]

... M* fund total return for 5 years ending 6/30/2014 was 16.37%, investor returns were 13.59%, my returns per Quicken were 17.34%. Yea! Guess I picked up some of that "average" investor money.

That's what I have been tryin' to tell y'all.

If you got ahead in the last 15 years, with the S&P as lousy as it was, either you did some buy-low-sell-high yourself, or relied on MF managers like Wellesley to do it for you.

 

[NW-Bound]

I think I recognize some of those ER posters confronting the bull in that picture.

Me, I am watching from a high perch.

Eh, that's what you think.

And look at the bloody horns on the bull in the photo below.

 

[Lsbcal]

After looking at those photos, I'm now convinced that a sky box will be a good investment.

 

[NW-Bound]

And I just want to be in the next town, eating a filet steak and drinking rioja, while watching the mêlée on TV.

 

[meierlde]

I've been 100% VG index funds for 10+ years, making very few contributions to my stash, yet it continues to double every 7-8 years. Is it the indexing or am I just a damn good investor?

Quite likley if you take vanguards 500 fund the returns for 5 years are 18.27/pa. Using the rule of 72 you are getting between 8 and 10% Using this web site for the CAGR on the S&P 500 since 1871 you get before inflation about 10.75% and after about 8.55% Yielding a doubleing time since 1871 of about 8.5 years.
Vanguard on its index fund claims after taxes on distributions returns of 23.8 for 1 years 15.66 for 3 and 18.27 for 5 and 7.32 for 10 years.

 

[NW-Bound]

Past performance of the market can be very misleading, particularly when we have had two bear markets when the S&P loss was around 50%.

If we count from one of the bottoms until now, it looks really good.

If counting from market top to market top, or from a market top till now, it is not so good.

 

[Lsbcal]

I recently updated my chart of data from the Investment Company Institute. I think this mutual fund flow includes ETF's.

Hardly looks like a wild bull market even with the great 2013 returns :

and here is some data on a longer term picture. We are not yet seeing multiyear periods of net cash flows to equities.

EDITED: Added green bars in 1st chart to make it easier to see comparison with 2nd chart. Slight change in "extended period" statement too.

 

[eta2020]

Retire Early: Book Review

So
The Millionaire Next Door: The surprising secrets of America's wealthy.

...must be be wrong. Because it states:


"Page 100. "Forty-two percent of millionaires the authors interviewed for their latest survey had made no trades whatsoever in their stock portfolios in the year prior to the interview. The so called active investor is one of the more difficult types of millionaires to find for interview purposes." Frequent traders take note: buy and hold seems to create more wealth."

 

[NW-Bound]

Again, Morningstar shows the aggregate MF holders doing poorly compared to the funds' performance, including index funds. And that's for a 15-year performance.

And we all know people who bailed out at the market bottom, or piled in at the market top.

So, I have no doubt that a buy-and-hold MF investor does better than the "average" MF investor.

The question no one has the answer for is that who's got the excess return? For every guy who sells at the bottom, someone is buying that stock. Who is that?

 

[eta2020]

Usually institutional buyers "Smart money" get excess return that retail investors lost. Now 2009-now bull cyclical bull market "Smart money" actually missed.

I want to stress that readers here (no matter how smart/wealthy they may be) are for 99% not "Smart Money" and for them following exact AA (avoiding any kind of trading except for re-balance) is best way to make money over a long term.

 

[NW-Bound]

... following exact AA (avoiding any kind of trading except for re-balance) is best way to make money over a long term.

But rebalancing makes you buy low sell high.

And that's the way to make money when the market jumps up/down like in the past 15 years. When it went straight up like the long bull period of 1983-2000, rebalancing meant keeping on selling year after year, and you now trail the market index. You would do far better just to buy and hold.

What I am trying to say is that people tend to extrapolate from recent history as to what method will work.

I do not claim to know, and in fact realize that I do not know. So, when people claim a certain way will always work, I look in the past to see if that method is truly universal. And I am not so convinced.

 

[Lsbcal]

If you are at 30% equities it is a different rebalancing issue then if you are at 65% or above.

Anyway, I think making general investment statements is even more difficult then market timing. Investment truths are hard to come by.

Nobody has yet offered to make me whole if their advice takes me down a rat hole. I think the crash of 1987 reminded me how it's up to me to make the ultimate decisions.

 

[eta2020]

But rebalancing makes you buy low sell high.

And that's the way to make money when the market jumps up/down like in the past 15 years. When it went straight up like the long bull period of 1983-2000, rebalancing meant keeping on selling year after year, and you now trail the market index. You would do far better just to buy and hold.

What I am trying to say is that people tend to extrapolate from recent history as to what method will work.

Recent history was 10 year secular bear market which included 2 cyclical bull markets.

So that would suggest that current cyclical bull market is part of new born secular bull market.

Historically we get far far better then 4.30% for 15 years of S&P. We get more like 8-9%. But I don't know. I am just speculating. My AA does not require me to be "smart money" in order to make a tidy profit.

 

[eta2020]

If you are at 30% equities it is a different rebalancing issue then if you are at 65% or above.

Anyway, I think making general investment statements is even more difficult then market timing. Investment truths are hard to come by.

Nobody has yet offered to make me whole if their advice takes me down a rat hole. I think the crash of 1987 reminded me how it's up to me to make the ultimate decisions.

No I think making "general" statements is far easier then market timing.

If you have simple portfolio:
VTI X%
VXUS Y%
BND Z%

And you stick with it no matter what is happening, and equities are majority then over a long time you will do very well.

People who are driven by fear during sell off and by greed during Bull peaks will do poorly. Lot of retail investors behave like this and that is why they under-perform funds in which they invest.

 

[NW-Bound]

I try to maintain an AA too. It's my way to hedge. And I am a self-proclaimed market timer because I decide when to rebalance, and do not have a fixed threshold.

And gasp, I even vary the AA depending on my perception of market risk. This is before I found that it is called Tactical AA.

I guess if I posted the above in boglehead forum, they would ban me right here and now.

 

[ejman]

But rebalancing makes you buy low sell high.

And that's the way to make money when the market jumps up/down like in the past 15 years. When it went straight up like the long bull period of 1983-2000, rebalancing meant keeping on selling year after year, and you now trail the market index. You would do far better just to buy and hold.

What I am trying to say is that people tend to extrapolate from recent history as to what method will work.

I do not claim to know, and in fact realize that I do not know. So, when people claim a certain way will always work, I look in the past to see if that method is truly universal. And I am not so convinced.

But it din't go straight up 1983-2000. There was a major (but short lived) crash in 1987, and significant unpleasantness in 1990 and 1994. A good deal of the marvel of that period actually took place in the last 2 years, particularly 1999 which really was off the charts. (we know what happened then).

 

[NW-Bound]

True. But the well-known crash of 1987 was fairly mild compared to the Great Recession. And I also remember the even milder crash of 1998 being caused by the Long Term Capital crisis. I do not remember the 1990 and 1994 periods.

During that period of 1980-2000, I was accumulating, and did not pay that much attention to our 401K's because I was too busy with work. No rebalancing at all. Worked out great!

 

[eta2020]

But it din't go straight up 1983-2000. There was a major (but short lived) crash in 1987, and significant unpleasantness in 1990 and 1994. A good deal of the marvel of that period actually took place in the last 2 years, particularly 1999 which really was off the charts. (we know what happened then).

S&P 500 Return Calculator - Don't Quit Your Day Job...

I get 14% annual return 1982-1997
I get 11% ....................1982-1999

But anyway that all was part on one huge SECULAR bull market.....

 

[NW-Bound]

One of the charts in the article Why trading volume is tumbling, explained in 5 charts shows tremendous growth since 2007 in index funds and exchange traded funds that track indexes.

So, trading volume is low, and that explains the recent low volatility.

But there's no guarantee that the volume will not pick up and go sky high to make up for the recent past low activity.

Hey, I am not wishing ill here, as I am in the market as everybody else. Just saying that it would not surprise me if the market gets roiling again.

 

[ejman]

S&P 500 Return Calculator - Don't Quit Your Day Job...

I get 14% annual return 1982-1997
I get 11% ....................1982-1999

But anyway that all was part on one huge SECULAR bull market.....

Thanks, that's a fun calculator. I get 24.5% annualized for 1998-1999 those were the days!

 

[eta2020]

Thanks, that's a fun calculator. I get 24.5% annualized for 1998-1999 those were the days!

I get 8.973 1871-now

As a first generation immigrant I must say this is a great country and many good years are in front of us. And 8.973 is plenty for me

 

[NW-Bound]

1871? That's way before my time.

I started working at a real job and making good money in 1980 to save, so only the period from 1980 till now counts for me.

 

[ejman]

1871? That's way before my time.

I started working at a real job and making good money in 1980 to save, so only the period from 1980 till now counts for me.

So, if things have been so terrible since 2000, how come most of the ER's @ this board are doing just fine? I would guess most of the ER posters here have retired since 2000...

 

[NW-Bound]

Eh, that's why I said they are closet day traders, while proclaiming to be buy-and-holders, etc., etc...

 

[Lsbcal]

So, if things have been so terrible since 2000, how come most of the ER's @ this board are doing just fine? I would guess most of the ER posters here have retired since 2000...

There is a secret there to be discovered by the patient.