Best short article / book on the value of indexing

[bongo2]

I was talking to my parents this weekend about investing (fraught with peril, but I think it turned out ok). I told them that I thought their actively managed funds were costing them ~1% more than an index fund would (plus trading costs), so they should switch. My dad said, "but that assumes the manager can't do better. This guy has beaten the averages since we owned it." I told him there's piles of evidence that supports good theoretical reasons to believe managed funds don't beat the averages in the long run, and I'd like to show him a nice summary of some of the evidence that is out there. I've read this same message a zillion places, and I'd like to find one of the most persuasive summaries that is short enough he might read it. Any suggestions?

 

[ats5g]

Bongo,

You can probably find an article at Eric Haas' links:

Mutual Fund Persistence

Passive vs. Active Management

I'm sure you can find some on point articles in John Bogle's speeches

- Alec

 

[FinanceDude]

I was talking to my parents this weekend about investing (fraught with peril, but I think it turned out ok). I told them that I thought their actively managed funds were costing them ~1% more than an index fund would (plus trading costs), so they should switch. My dad said, "but that assumes the manager can't do better. This guy has beaten the averages since we owned it." I told him there's piles of evidence that supports good theoretical reasons to believe managed funds don't beat the averages in the long run, and I'd like to show him a nice summary of some of the evidence that is out there. I've read this same message a zillion places, and I'd like to find one of the most persuasive summaries that is short enough he might read it. Any suggestions?

Problem is that if his funds have beaten the index funds net over HIS time frame, how are you going to change his mind?

 

[Olav23]

I like the "12 step" cards at IFA:

http://www.ifa.com/12steps/

Just hover over them and they give you a cute little summary. Be careful though, you fight this at your own peril. Wars have been fought over less

 

[yakers]

Try this one:

http://money.cnn.com/2001/08/29/investing/Zweig/

 

[ERD50]

Problem is that if his funds have beaten the index funds net over HIS time frame, how are you going to change his mind?

And if his funds actually have beaten the index over that time - what's the problem? Sure, they might under perform over the next time period, but as long as they are not wildly volatile it'll probably be fine.

But you might want to check if they actually did outperform - often people have selective memories about this.

I guess I'm just saying, pick your battles. It might be more important to see if the overall asset allocation is OK, and if there are any real dogs in there.

-ERD50

 

[2B]

Problem is that if his funds have beaten the index funds net over HIS time frame, how are you going to change his mind?

If he has owned a managed fund that has beaten the indexes over his lifetime, please let me know. I'd like to buy it. I wouldn't try to change his mind.

Unfortunately, he's probably suffering from some form of defensive behavior. Ask the fund. Call it up on any one of the on line resources. Plot it against the basic domestic and international indexes.

He might have a great financial advisor that is always ready with an encouraging analysis.

 

[Dude]

Have you considered Bogle's new book:
The Little Book of Common Sense Investing: The Only Way to Guarantee Your Fair Share of Stock Market Returns

http://www.amazon.com/Little-Book-C...2792817?ie=UTF8&s=books&qid=1174958917&sr=1-4

I haven't read it yet but it sounds good and somewhat condensed down to the most important points I assume.

"To learn how to make index investing work for you, there’s no better mentor than legendary mutual fund industry veteran John C. Bogle."

 

[redduck]

I was talking to my parents this weekend about investing (fraught with peril, but I think it turned out ok). I told them that I thought their actively managed funds were costing them ~1% more than an index fund would (plus trading costs), so they should switch. My dad said, "but that assumes the manager can't do better. This guy has beaten the averages since we owned it." I told him there's piles of evidence that supports good theoretical reasons to believe managed funds don't beat the averages in the long run, and I'd like to show him a nice summary of some of the evidence that is out there. I've read this same message a zillion places, and I'd like to find one of the most persuasive summaries that is short enough he might read it. Any suggestions?

Bongo...

Which fund is it?

 

[Peaceful_Warrior]

Nice article. Short and effective, and reinforces my strategy.

I've got Vanguard Total Stock, so I think next on my list is Vanguard Int'l Ex-Us.

Try this one:

http://money.cnn.com/2001/08/29/investing/Zweig/

 

[LOL!]

Well, it's easy to beat the market average as long as you pick the correct market average for your purpose and you use other asset classes to show how great you are. That is you compare apples-and-organges. Lots of times a portfolio is compared against the wrong benchmark. For example, a small cap international heavy portfolio is compared to the S&P500 benchmark.

There is a host of "must-read" articles on Paul Merriman's www.fundadvice.com web site. Have you read them? One of them is probably what you want.

Here is one though that you don't want to show him:
It's easy

 

[saluki9]

If he has owned a managed fund that has beaten the indexes over his lifetime, please let me know. I'd like to buy it. I wouldn't try to change his mind.

Depends what his time period is. I can find a couple that have outperformed in my lifetime. For example, Growth fund of America has outperformed by almost 200bps.

 

[unclemick]

Three are listed by Bogle - looking back only 35 years(kinda short term IMHO but?):

Davis NY Venture, Fidelity Contrafund, and Franklin Mutual - it's looking forward that's the rub.

The Vegas Money Show keynote speech - May 2006. Google up the Bogle Financial Markets Research Center or use the link posted on the related thread above.

heh heh heh heh - I think it's like value investing - the logic/rationale of indexing either 'takes' or it doesn't. You can get there with active funds - in most cases it's harder work/lower return - but it keeps the hormones happy.