30 reasons to fall in love with index funds

[REWahoo]

Although I don't own them , I think this is an excellent list of why investing in index funds makes a lot of sense. Here are the first 10 reasons:

1. You won't ever again have to deal with a pushy salesman or broker.
2. Your long-term results are likely to put you ahead of 90% of other investors.
3. Never again will you have to decide whether to hire or fire a manager.
4. You don't have to monitor a fund manager's performance.
5. You don't have to fall in and out of "love" with any individual stocks.
6. What's going on inside the fund is simple and transparent.
7. Your expenses will be among the lowest of all funds, leaving more of the portfolio's return for you.
8. Your capital gains taxes will likely be lower, leaving more for you.
9. The greater diversification in index funds reduces your risk.
10. With an index fund, you know exactly what you're getting. You won't have to beware of any "style drift" to throw off your asset allocation. Often this drift seems inevitable in actively managed funds as they grow larger.

The other 20 reasons and the full article can be found here: 30 reasons to fall in love with index funds

 

[ajs56]

Thanks for sharing this article! A large portion of our portfolio is in index funds. Love the low expenses and as the article points out, they are relatively simple to select and monitor. They have served us well for decades.

 

[ERD50]

You had me by #2

You don't have any index funds at all? I know you've mentioned the two W's, but is that it?

While I can understand the attraction of those two, I guess I still would want some diversification from a couple managed funds. Even though they have 'earned their stripes', I just can't help but think that their management could go out of whack at some point, and their management approaches are probably pretty similar (within their stated guidelines).

Maybe an asteroid strike is more likely though, but I guess I still would think some % in indexes would be prudent. But that's just me.

-ERD50

 

[REWahoo]

I'm happy with the AA resulting from a mix of the two W's.

Damn the asteroids, full speed ahead!

 

[NW-Bound]

But, but, but the W funds are not index funds. Their managers have explicitly said so, and emphasize that they are stock pickers.

 

[REWahoo]

+1

And they are far better at it than I am!

 

[NW-Bound]

So, index funds are for the birds, while we either pick our own stocks, or go with those who can?

 

[steelyman]

I have both active and indexed.

I also liked both Ginger and Mary Ann.

 

[photoguy]

Well index funds may have to pay licensing fees which kinda sucks but is not that bad. As far as I could tell, for example, Vanguard's fees it used to pay to MSCI was only on the order of 0.5 basis points.

 

[NW-Bound]

I do not know about lovin' any index. Does it love me back? Indices are defined by some committees anyway, not by God. After a stock has been up, they add it to their index. If a stock goes down, they kick it out. Alcoa (symbol AA) was kicked out of the DJ Industrial in Sep 2013. Looks how it has been doing (nearly doubled!).

All I want is money. If it makes me money, I want it. All I love is money.

So what if the W fund managers pick stocks to have good returns, or do it by hook and crook? I may buy some more one of these days, when I get tired of doing my own slicing and dicing.

 

[Gunny]

I have two Index's in my TSP, C and S. I also have the W's in my Roth IRA. This will not be my sole source of FIRE income. FERs, which I could live on, will make up around 50% of my FIRE income. I am very comfortable with this mix.

 

[NW-Bound]

Seriously, index funds are not all bad. They provide an investor with diversification, low fees, and a low turnover despite the occasional throwing out some stocks that turn cold and adding more recent hot stocks.

If buying an index fund keeps an investor from chasing hot stocks, or sectors, or indirectly via an MF that chases hot stocks, then it is good. But I will stop short of saying that it is the only way to invest, which is similar to saying that one must go to church every weekend in order to not commit murders and rapes.

 

[yakers]

IMHO the two most important aspects of investing are diversification and low expenses. Index funds do that automatically but both can be addressed outside of index funds as well. About half our financial assets are in index funds/ETFs, have some of the Ws, some dividend stocks and various forms of fixed income (REITs, stable value fund, ibonds, foreign bonds).

Perhaps the greatest advantage of index funds are their simplicity. Told DW to put all the stocks into a total market index fund or Wellesley. I don't think she could sustain an interest in managing more than 3 funds, one would be preferable.

 

[Tortoise]

We own 100% index funds and sleep very well at night. Our main holdings are the Vanguard Total US Stock Market, Vanguard International Stock Market, and Vanguard Total Bond Market.

 

[nash031]

Reason number 1 to not love index funds: 20-year-old FOREX traders will mock you for being satisfied with mediocrity.

 

[Kimo]

I have both active and indexed.

I also liked both Ginger and Mary Ann.

+1

 

[W2R]

I love index funds, for all the reasons listed, especially #7, 8, and 9.

I also love Wellesley! I have been following Wellesley since before I had any money to invest. So, I have 30% Wellesley, and the rest is index funds. Hopefully that covers all bets.

 

[REWahoo]

So, index funds are for the birds, while we either pick our own stocks, or go with those who can?

Your words, not mine.

I owned index funds during the accumulation phase but now that I'm retired and "decumulating" their lack of income generation is a negative - at least for me. Plus, I'm trying to set up my investments so that they are on autopilot as I age. The fewer decisions I have to make the fewer opportunities I'll have to screw up. Balanced funds like W&W go a long way in helping me achieve that hands-off goal.

 

[NW-Bound]

...Hopefully that covers all bets.

I dunno. Some will say that covering all bets require you to have a Forex account too.

There are many bets I do not make, because I am not knowledgeable, or because I am chicken, or I just do not think they are necessary.

 

[NW-Bound]

Your words, not mine.

I owned index funds during the accumulation phase but now that I'm retired and "decumulating" their lack of income generation is a negative - at least for me. Plus, I'm trying to set up my investments so that they are on autopilot as I age. The fewer decisions I have to make the fewer opportunities I'll have to screw up. Balanced funds like W&W go a long way in helping me achieve that hands-off goal.

I think we both agree that there are many ways to skin a cat. Successfully I mean.

And then there are people who refuse to "skin this cat". They only buy CDs or annuities.

 

[W2R]

I dunno. Some will say that covering all bets require you to have a Forex account too.

There are many bets I do not make, because I am not knowledgeable, or because I am chicken, or I just do not think they are necessary.

Let me rephrase that, then:

Two types of portfolios, a W&W portfolio and a Bogleheadish all index fund portfolio, were the most appealing to me. I couldn't make up my mind, so I decided to do both, covering my best two (2) bets.

 

[NW-Bound]

All right! Of course there are bets both of us do not care to make, like at the Forex or going to the race track.

But of course I have many smaller bets going on. More than most, but less than a few posters here. I fancy myself the manager of a tiny MF, picking my own stocks, in charge of my own money. Better than a MF manager, I do not have to make quarterly report, nor explain myself to anybody. I will stop at some point, but not now.

 

[Walt34]

We own 100% index funds and sleep very well at night. Our main holdings are the Vanguard Total US Stock Market, Vanguard International Stock Market, and Vanguard Total Bond Market.

That's what I did too. It's not our sole source of income though.

Reason number 1 to not love index funds: 20-year-old FOREX traders will mock you for being satisfied with mediocrity.

Let them. When they spin crash and burn I'll be gloating.

 

[W2R]

All right! Of course there are bets both of us do not care to make, like the Forex or going to the race track.

You're right. Personally I wouldn't bet a penny on Forex, and I have never bet on horses either.

 

[Kimo]

I think you would have a better chance on the horses.....