Could someone help explain these Mutual Fund expenses?

[cute fuzzy bunny]

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Originally Posted by Art G Sorry, but this theory just drives me out of my gourd! First off, an index fund is the only GUARANTEED to underperform its index. Now, as to fees, you should compare not only 12b-1's, but also, management fees and most importantly total returns. There are fund families out there that trade heavily and therefore incur quite a few expenses, and some that trade very little. But most importantly should be results. Would you rather pay 5% for a 20% return, or 2% for a 10% return? Personally, I look much more closely at 5, 10, and 20 year return averages, than I do the expense ratio. But then, I'm an investor, not an accountant.

Actually by timing some of the index additions and removals, an adept index fund manager can squeak out gains over and above the index returns.

As for the rest, the data says that most funds with high ER's have lower returns than their comparable indexes, over 20 year periods. A high ER fund with high risk adjusted returns vs their index equivalents rarely happens. When it does, you had to be lucky enough to be in it, because there was usually no forewarning. If you jump into one thats had great "5, 10, 20 year numbers", chances are your next 5, 10 or 20 will be underperformance years.

[FinanceDude]

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Originally Posted by cute fuzzy bunny Actually by timing some of the index additions and removals, an adept index fund manager can squeak out gains over and above the index returns.

I thought they had to adjust to the index changes in a timely fashion, are you saying Vanguard and others are not acting as "true index funds".......:confused:

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As for the rest, the data says that most funds with high ER's have lower returns than their comparable indexes, over 20 year periods. A high ER fund with high risk adjusted returns vs their index equivalents rarely happens. When it does, you had to be lucky enough to be in it, because there was usually no forewarning. If you jump into one thats had great "5, 10, 20 year numbers", chances are your next 5, 10 or 20 will be underperformance years.

I think the best part is "MOST", not "ALL". I own some funds myself that have trounced the indexes, but for a lot of folks, an index fund is fine..............

[cute fuzzy bunny]

They do have to adjust the index in a timely manner, but as I understand it Sauter and company have been both timing their entry/exits for new index additions/deletions, and also substituting futures when those become cheaper than the actual equities.

Doesnt squeak too much out, but if there were no minor shenanigans going on then all s&p 500 indexes would perform exactly the same for a given ER. Yet they dont.

As far as your funds, have they trounced the indexes for 20 years?

Did you know for sure when you bought them that they'd do their short term trouncing? Or was it luck of the draw? Did all the non-index funds you bought trounce their index equivalents, risk adjusted? Havent we already all had these conversations a few dozen times?

[Art G]

Can't the reverse then be true? ...Did you know before you bought your index fund that it wouldn't underperform other indices? Or that the S&P wouldn't underperform the market as a whole?
If I'm buying something, I'm buying with the belief I've given myself the best odds possible to make gains. If I were only after the very top gains, I'd be buying nothing but sector funds or specific country funds. However, my thinking is, I'd much rather put my money with proven managers than to put it in a place that merely buys an index. Are you also a fan of unmanned jets and computers running the world

[cute fuzzy bunny]

No, but I'm a fan of the reams and reams and reams of data that say that managed funds underperform index funds over longer periods of time. I'm planning on investing for longer periods of time.

But there are people who dont like the idea that a passive investment does better than an active one, or that monkeys throwing darts at the stock pages produce better results than active managers.

Unfortunately, disbelief usually fails to change the actual data.

But again, some folks just cant help themselves. They want to believe that a hand on the wheel improves the results. They want to believe that paying 1.5% to a fund manager can give them better results.

Even in the cases and time periods where active management produces market beating results, its all hindsight. And these "winners" vs losers, even after the survivors bias is thrown in, still are in numbers lower than random chance would produce.

I used to agree with you. Then I read a couple of books and reviewed all the information and found that my inherent opinion that active management just HAD to do some good had no factual basis whatsoever.

An opinion in opposition of the facts has a name...cant put my finger on it though...

[Art G]

You slam managed funds, and yet when FD states he has some winners with historical proof, you "pooh pooh" the idea of buying them just because history is on their side. And yet, your response is based on the reams you've read showing historical proof? Kind'a hippocritical, isn't it?
For what it's worth, index funds beating managed funds has a fairly short history of occurrence. Just because an index fund beats 75% of the funds in existence, does not mean that the other 25% aren't worth a darn.
I wonder if the reason people don't mind underperforming in an index fund is because they can say to themselves, "well, at least other people didn't do well either"?

[FinanceDude]

Well, I'm not selling my American Funds, and their ERs are WAY under 1.5%, more like 50-60bp a year......

yes, we have had this conversation....... However, there are those on here like you that REFUSE to believe ANYONE can get a better return than a Vanguard fund...hence my reply........

Well, I randomly picked one American Fund and used Vanguard's own software to compare:

https://personal.vanguard.com/us/Fun...0&FundId2=2586

[Art G]

Those numbers have GOT to be wrong! There's no way a load fund could ever outperform an index fund short term. Wait, good thing we're long term investo.....uhhh, what the heck?....it outperformed long term also??
BLASHPHEMER!!!!

[ats5g]

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Originally Posted by Art G Those numbers have GOT to be wrong! There's no way a load fund could ever outperform an index fund short term. Wait, good thing we're long term investo.....uhhh, what the heck?....it outperformed long term also?? BLASHPHEMER!!!!

eh, no. See Bogle's Case Study on AIVSX: As The Index Fund Moves from Heresy to Dogma . . . What More Do We Need To Know?. You'll have to scroll half way down.

- Alec

[Art G]

You post something 30 pages long, then tell me to find what you're referring to?...How about posting it?
I have no idea who this Bogle is, but are you telling me that Vanguard's own website is wrong?

[sarahsays]

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Originally Posted by Art G I have no idea who this Bogle is, but are you telling me that Vanguard's own website is wrong?

John Bogle - Wikipedia, the free encyclopedia

He's the founder of Vanguard and has long touted the value of index funds.

[Art G]

OK, I think I found the part you're referring to, and I found quite a few flaws. Just a few....

during 1973-2003 at +13.2% per year, or 1.8 percentage points over the 11.4% return on the S&P 500 Index

OK, they talk about an 8 1/2% sales charge (long ago reduced), but tell me how 8.5% 30 years ago is equal to less than 1.8% gain over 30 years?

Anywho....I note this article omits the last five years.
Also, is going back to '73 a fair sampling, seeing that again, S&P index funds really didn't outperform until 80's or 90's, and ICA has been around since 1935 I believe.
I could go on, but again I can see its useless. When you buy a Vanguard fund do they give you one of those spinny things that put you into a trance?

[ats5g]

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Originally Posted by Art G OK, I think I found the part you're referring to, and I found quite a few flaws. Just a few.... during 1973-2003 at +13.2% per year, or 1.8 percentage points over the 11.4% return on the S&P 500 Index OK, they talk about an 8 1/2% sales charge (long ago reduced), but tell me how 8.5% 30 years ago is equal to less than 1.8% gain over 30 years?

I think you mean a [b]0.80%[/url] loss [13.7% - 14.5%].

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Anywho....I note this article omits the last five years.

Did you even read FD's link. For the 5 years ending 3/31/08, AIVSX [without the load] trailed VFINX.

[cute fuzzy bunny]

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Originally Posted by FinanceDude yes, we have had this conversation....... However, there are those on here like you that REFUSE to believe ANYONE can get a better return than a Vanguard fund...hence my reply........

Not all all the case. I fully believe that many funds will beat the market for a year, five years, and some even for ten. I'd like to see the long list of ten and twenty year market beaters that are likely to do it again.

But so far none have done it for more than ten except for a couple. Random coin flipping should do better than that.

And what missing is figuring which ones are going to be the market beaters for the NEXT five or ten years.

So perhaps it'd be best to line up some actual data and research before stuffing words into my mouth? :

[Art G]

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Originally Posted by ats5g I think you mean a [b]0.80%[/url] loss [13.7% - 14.5%]. Did you even read FD's link. For the 5 years ending 3/31/08, AIVSX [without the load] trailed VFINX.

LOL! I was referring to your article. Did you even read your own article?

[Art G]

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Originally Posted by cute fuzzy bunny Not all all the case. I fully believe that many funds will beat the market for a year, five years, and some even for ten. I'd like to see the long list of ten and twenty year market beaters that are likely to do it again. But so far none have done it for more than ten except for a couple. Random coin flipping should do better than that. And what missing is figuring which ones are going to be the market beaters for the NEXT five or ten years. So perhaps it'd be best to line up some actual data and research before stuffing words into my mouth? :

Seriously So you want FD to tell you which funds are going to outperform for the next five years? Yeah, tell me too.
I thought we were using historical data to make a point?
I truly don't get your point, so you can correct me if I am misquoting you.... even though there are funds that have outperformed the index for the last 10 or 20 years, you'd still rather take a chance by buying a fund that requires no thought process, for the simple reason that you strive to be around the average?

[sarahsays]

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Originally Posted by Art G I truly don't get your point, so you can correct me if I am misquoting you.... even though there are funds that have outperformed the index for the last 10 or 20 years, you'd still rather take a chance by buying a fund that requires no thought process, for the simple reason that you strive to be around the average?

Not trying to gang up, just hoping to clarify.

I think what he's saying is he'd rather pick a fund that will be around the average, rather than a fund that might wildly underperform or outperform the average.

[cute fuzzy bunny]

What actually happened was that I meant to just add someone to my ignore list and typed an entire message by accident...

What I was saying is that after about 20 years, your basic market index outperforms pretty much ALL other similar risk level funds, at a very low cost. Were there one or two that did better, chances are they took on a lot more risk and had much higher expenses. Oh...and theres that whole part where you'd have better luck being killed by a shark than picking the right one and sticking with it.

This was in an attempt to mitigate suggestions that paying extra for a managed fund gave you a better chance of outdoing an inexpensive fund. A claim for which there is no supporting data...in fact, quite the opposite. Oh, and trying to fend off claims that I held opinions I dont have.

Lets all do remember that it took everyone here three years to convince me that actively managed funds werent the best place for your money.

Just before unsubscribing from this thread, I should also deeply apologize to all of those who have their minds made up and may have been confused by actual facts, or for failing to perform to an expected capacity.

[Art G]

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Originally Posted by sarahsays Not trying to gang up, just hoping to clarify. I think what he's saying is he'd rather pick a fund that will be around the average, rather than a fund that might wildly underperform or outperform the average.

But this isn't what FD was talking about. He was specifically picking a fund that has outperformed the S&P both short term and long term, and been around doing it for 70 years.
That's like saying "I'm going to eat at McDonald's everyday because while I might be able to get better food elsewhere, there's a chance I may find a roach in my salad elsewhere".
I just don't get it.

[Art G]

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Originally Posted by cute fuzzy bunny What actually happened was that I meant to just add someone to my ignore list and typed an entire message by accident... What I was saying is that after about 20 years, your basic market index outperforms pretty much ALL other similar risk level funds, at a very low cost. Were there one or two that did better, chances are they took on a lot more risk and had much higher expenses. Oh...and theres that whole part where you'd have better luck being killed by a shark than picking the right one and sticking with it. This was in an attempt to mitigate suggestions that paying extra for a managed fund gave you a better chance of outdoing an inexpensive fund. A claim for which there is no supporting data...in fact, quite the opposite. Oh, and trying to fend off claims that I held opinions I dont have. Lets all do remember that it took everyone here three years to convince me that actively managed funds werent the best place for your money. Just before unsubscribing from this thread, I should also deeply apologize to all of those who have their minds made up and may have been confused by actual facts, or for failing to perform to an expected capacity.

Whatever, it's your returns. I just hate to see a whole group of people gathering false information from someone so closed minded.