expense ratio vs return

[harley]

You'll never convince an active management or individual stock picker that indexing is the better way to go (if it is), so just allow them their opinion. It only gets obnoxious when people with different sets of facts/assumptions try to convert someone from the other side. What's that saying about wrestling a pig in the mud?

 

[samclem]

You'll never convince an active management or individual stock picker that indexing is the better way to go (if it is), so just allow them their opinion. It only gets obnoxious when people with different sets of facts/assumptions try to convert someone from the other side. What's that saying about wrestling a pig in the mud?

True. Once "Q" said he was familiar with the many and rigorous studies that rendered his position intellectually indefensible, but was disregarding them--well, I figure there's no salvaging that situation. But, this isn't a private dialogue. Folks like the OP come here looking for assistance, and when others post info that is not accurate, it seems best to address the issue. OldShooter has been doing that, and providing good links. The OP said he/she wanted "simple' and has chosen to screen funds by their 10 year performance. That is a loosing strategy, and it is useful to explain why.

 

[samclem]

When I pick a fund I look for the highest 10 year return then if there is a tied I look at the lowest e/r.

Greg, that's what I used to do. It doesn't work, and the reason is that there's very little persistence in the performance of mutual funds, A fund that has done great even for ten years running has virtually the same likelihood of doing well over the coming 10 years as any other fund (with the same types of investments). It is not possible to pick the future "best" fund with any odds better than strict chance.
If you want "simple", pick a low e/r target date fund that matches your desired asset allocation (now and in the future). Put your money in there and leave it alone. You'll do better than about 90% of investors, especially those who try to pick the hottest funds or who hop into/out of asset classes based on what they read, hunches, advice of advisors, etc.

 

[Qs Laptop]

True. Once "Q" said he was familiar with the many and rigorous studies that rendered his position intellectually indefensible, but was disregarding them--

You have a link where I said that?

well, I figure there's no salvaging that situation. But, this isn't a private dialogue. Folks like the OP come here looking for assistance, and when others post info that is not accurate, it seems best to address the issue.
OldShooter has been doing that, and providing good links.

I answered the OP's question and was thanked for it. OldShooter said what I posted was true. Then he changed the discussion from expense ratios relationship to returns into, "don't even try to beat the market, it's useless."

The OP said he/she wanted "simple' and has chosen to screen funds by their 10 year performance. That is a loosing strategy, and it is useful to explain why.

It can be a losing strategy, if that's the only thing you base your analysis upon.

 

[pb4uski]

https://www.kiplinger.com/article/i...nvest-in-actively-managed-or-index-funds.html

.... Over the past 15 years, only 35% of actively managed large-company U.S. stock funds have beaten Standard & Poor’s 500-stock index. ....

.... Still, it’s hard to refute statistics showing that low-cost index funds tend to outperform most of their active brethren over time. One smart solution: Strike a balance between active and index funds. Keep your core portfolio (the actual portion is up to you) in broad-based index funds that track the S&P 500 or a total-market benchmark, and complement it with low-cost active funds with stellar records. ...

 

[OldShooter]

You'll never convince an active management or individual stock picker that indexing is the better way to go (if it is), so just allow them their opinion. It only gets obnoxious when people with different sets of facts/assumptions try to convert someone from the other side. What's that saying about wrestling a pig in the mud?

Yeah. You're probably right.

Ironically, I was re-reading Kahneman's "Thinking Fast and Slow" a couple of days ago and hit a couple of pages where he describes a consulting gig that he and Richard Thaler (both Nobel laureates) had at a firm that "provided financial advice and other services to very wealthy clients." Here are some snippets:

" ... I was [given] a small treasure: a spreadsheet summarizing the investment outcomes of some twenty-five of their ... wealth advisors, for each of eight consecutive years." ... "I knew the theory of course and was prepared to find weak evidence of persistence of skill. Still, I was surprised to find that the average of the correlations was 0.01. In other words, zero. ... The results resembled what you would expect from a dice-rolling contest, not a game of skill."

"There was no sign that they disbelieved us. ... [but] I have no doubt that our findings were swept under the rug and that life in the firm went on just as before."

"Facts that challenge the basic assumptions -- and thereby challenge people's livilihoods and self-esteem --- are simply not absorbed."
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[OldShooter]

.... Over the past 15 years, only 35% of actively managed large-company U.S. stock funds have beaten Standard & Poor’s 500-stock index. ....

Even this is evidence of cooked books. The S&P 500 is not an appropriate benchmark for many, probably most, US actively managed funds. The S&P SPIVA reports are more nuanced, with funds compared to appropriate benchmarks, and they don't get close to as good as one out of three funds outperforming. Roughly/from memory, the SPIVA results for 15 years show a tiny number (like 5% or less) of funds outperforming their benchmarks.

 

[Clone]

I think there are a number of issues to consider, and we confuse ourselves when we try to group them all together.

Categories-

An Index Fund that is supposed to track a specific broad benchmark. If you have multiple funds that are supposed to track the total market (or S&P 500), then the lowest expense ratio should prevail. As expense ratios have been squeezed down to relatively insignificant amounts in the past few years, there should be little difference between an S&P fund at any of the low exp ratio brokerages. If there is a difference, then we start to ask why?

A mutual fund with a well known track record or manager- such as Magellan, or similar. The exact holdings may vary, but we are betting on a philosophy or a portfolio manager. The manager or philosophy may do very well, but being concentrated or not diversified introduces risk. The narrower the focus, the greater the opportunity for better (or worse) performance. A lot of studies say that there is no correlation, or magic formula for assuring success.

Specific stocks. Now we are placing our money on a very narrow selection of stocks believing that they will outperform the pack. Opportunities for boom or bust.

Many of us prefer to use a blend of funds to align with an asset allocation that we can tolerate. The couch potato approach says that we are willing to accept average returns. Many of us (myself included) have the bulk of our money in total market or index funds, with a bit of gambling money that we will put into narrower funds or individual stocks. My money in the Large Cap Growth fund is like that. It has done well the past few years, but there is no way that I will put all my eggs in that basket.

 

[samclem]

Roughly/from memory, the SPIVA results for 15 years show a tiny number (like 5% or less) of funds outperforming their benchmarks.

Ah, but that doesn't matter. As long as you believe (despite all evidence) that it is possible to reliably identify that tiny fraction in advance. " I don't pick these funds at random, ya know! I have screening crieteria/special powers/a guru which lets me find the WINNERS. Sure, no fund can be hot forever, so I change when a new winner comes along.".
These folks keep a major industry alive and they help keep the stock prices efficient overall, which is key to allowing indexing to work. Yes, in the agregate they are less successful than indexers, but apparently they are happy and helping many of us make money in our investments.

 

[Qs Laptop]

Keep your core portfolio (the actual portion is up to you) in broad-based index funds that track the S&P 500 or a total-market benchmark, and complement it with low-cost active funds with stellar records. ...https://www.kiplinger.com/article/i...nvest-in-actively-managed-or-index-funds.html

This is essentially what I do. Except about one-third of my large cap space in is index, two-thirds in managed funds--TRBCX, FOCPX, ANEFX, FKDNX. Also, for tax reasons the index funds are mostly in my taxable accounts.

I buy and hold, rebalancing as necessary, which lately amounts to skimming profits from the equity IRA accounts into bond funds within the IRA.

**I'm not actively buying and selling stocks or mutual funds.**

I am investing in good quality managed mutual funds with relatively low ERs.

The most activity I see is yearly funding of my wife's and my trad IRAs and Roths. Most of that funding comes from cash and/or selling a portion of my equities in the taxable accounts. It's been working pretty well in these market conditions in the past several years.

This is what works for me. I have personal experience with funds that I've owned or do own that have beat the index. So I'd appreciate not being called ignorant for making more money than the index.

 

[Clone]

I also think we need to be careful about getting too proud of our accomplishments. When I look at the investment options in my 401K, anything with Bonds in it was a drag on performance. Interest only of course was under 2% That leaves 11 fund options. Real Estate and Commodities were a break even proposition. 2 funds under-performed the S&P. 5 funds out performed it.

This past 12 months, you could not swing a dead cat around that mix without picking some winners.

 

[mrfeh]

I was just using the ytd as a quick example. For instance last year ytd for the vanguard was 12.46 and a 10 yr of 9.92 and the other acct last year was 31.99 and a 10 yr of 11.11

When I pick a fund I look for the highest 10 year return then if there is a tied I look at the lowest e/r.

You are clearly comparing 2 very different funds, if one did 12% last year and the other did 31%.

You can't compare apples and oranges like that. The fact that you're doing just that indicates you don't understand the basics of investing.

Please educate yourself before you buy/sell anything.

 

[jimbee]

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I must be slow. Based on this chart, how is accepting market returns average? Looks above average to me.