Bogle advice on index funds

[Investornew]

I am reading the Boglehead book, and it says in a nutshell, you can do all your investing in just index funds and do just fine. I'm planning to move my IRA back to Vanguard. Just put it all in index funds? Seems kind of risky to me.

I've also read that you should diversify and it's not wise to put all your eggs in one basket.

 

[meierlde]

I am reading the Boglehead book, and it says in a nutshell, you can do all your investing in just index funds and do just fine. I'm planning to move my IRA back to Vanguard. Just put it all in index funds? Seems kind of risky to me.

I've also read that you should diversify and it's not wise to put all your eggs in one basket.

If you include fixed income as well as equities you have at least asset class diversity. (Can get index funds in both classes). As to an asset class if the 500 or total stock market funds tank the entire asset class tanks.
So once you decide on asset allocation between asset classes, then index funds of the various classes provide some diversity.

 

[travelover]

...........
I've also read that you should diversify and it's not wise to put all your eggs in one basket.

How many stocks do you think are in an index fund? The answer is hundreds. That is my definition of diversification

 

[48Fire]

I recently had a meeting with a Vanguard FA, and he recommended the following for me.
Percent Symbol Fund Description
42% VTSAX Total Stock Market Index. Includes 70 stocks from S&P 500 and 2500 additonal mid-cap stocks.
28% VTIAX Total International Stock Market Index. 80% large-cap stocks like Nestle, Honda, Toyota, and small amount of Emerging Market stocks.
21% VBTLX Total Bond Index Fund. Short and Intemediate bonds.
9% VTABX Total International Bond Fund. Hedge against U.S. performance.

 

[bw5972]

I am reading the Boglehead book, and it says in a nutshell, you can do all your investing in just index funds and do just fine. I'm planning to move my IRA back to Vanguard. Just put it all in index funds? Seems kind of risky to me.

I've also read that you should diversify and it's not wise to put all your eggs in one basket.

I have not read the book but my understanding is the approach would be to first decide your target asset allocation. i.e. What PCT's in equities vs bonds vs cash. From there, the EQUITY portion would be all index funds if you're following the Boogleheads.

 

[Investornew]

If you include fixed income as well as equities you have at least asset class diversity. (Can get index funds in both classes). As to an asset class if the 500 or total stock market funds tank the entire asset class tanks.

That's what I thought, too. But the Bogle book said if the 500 index tanks then the economy would be so bad at that point, that I'd have worse things to worry about that my IRA. ??

Although index funds are popular now, what if it's not sustainable for the future.

 

[Investornew]

I have not read the book but my understanding is the approach would be to first decide your target asset allocation. i.e. What PCT's in equities vs bonds vs cash. From there, the EQUITY portion would be all index funds if you're following the Boogleheads.

I want 80/20 or 75/25. More equities than bonds. I had some index fund in Vanguard a while back doing really well. When I moved everything over to Edward Jones, the adviser pulled it out and replaced it with some mutual funds.

 

[OldShooter]

I am reading the Boglehead book, and it says in a nutshell, you can do all your investing in just index funds and do just fine. I'm planning to move my IRA back to Vanguard. Just put it all in index funds? Seems kind of risky to me.

I've also read that you should diversify and it's not wise to put all your eggs in one basket.

Congratulations. You have struck gold. Passive investing has been shown to win compared to stock-picking for many years in many statistical studies.

There can now be endless discussion of what the right mix of funds should be, how much home country bias should be, and whether the portfolio should have a tilt towards value and/or small stocks. But all of that is simply fine tuning of a proven sound principal.

Here is a page: https://famafrench.dimensional.com/videos.aspx with many videos by investment gurus Eugene Fama and Kenneth French. Poking around there will probably reduce your concern. I suggest that you start with this one: Is This a Good Time for Active Investing?

Here are a couple more by another guru, Harry Markowitz:
https://youtu.be/TbMjIn1p-i0
https://youtu.be/wqMZm7vP0DU

 

[meierlde]

That's what I thought, too. But the Bogle book said if the 500 index tanks then the economy would be so bad at that point, that I'd have worse things to worry about that my IRA. ??

Although index funds are popular now, what if it's not sustainable for the future.

Note that the issue of asset class reflects being able to live thru a 1932 style crash. Boogle may take things a bit far by saying you only need hold equities, after all the 500 index. After all a 47% decline as happened march 2008 to march 2009 is close to tanking. (Although not as bad as 1929-1932).
Most adivisors tend to at least some fixed income with the percentage increasing as you get older.

 

[sengsational]

How many stocks do you think are in an index fund? The answer is hundreds. That is my definition of diversification

There is "institutional risk" of having all your eggs in the single Vanguard basket. Maybe the day you need the money, their system will be down, but Fidelity's will be up....not much risk, but non-zero.

 

[bw5972]

I want 80/20 or 75/25. More equities than bonds. I had some index fund in Vanguard a while back doing really well. When I moved everything over to Edward Jones, the adviser pulled it out and replaced it with some mutual funds.

Just curious, how did the Edward Jones mutual funds do vs if you had stayed where you were?

 

[OldShooter]

... Although index funds are popular now, what if it's not sustainable for the future.

Here's the grand-daddy of all passive investing papers: https://web.stanford.edu/~wfsharpe/art/active/active.htm Reading it and really absorbing its implications will help you understand that this is not a transient phenomenon. The recommended Ken French video will help too.

One important thing to understand is that the massive establishment that relies financially on people believing in active management is in full "Chicken Little" mode now, spreading FUD everywhere. (Fear, Uncertainty, Doubt). This establishment includes investing web sites and publications who rely on the active managers to buy advertising. You really cannot believe most of what you see on these sites and in these publications.

Yet another link: The WSJ recently published an excellent article called "The Dying Business of Picking Stocks." Unfortunately it appears to now be behind a paywall. Here is a summary that I found: https://www.ifa.com/articles/dying_business_picking_stocks_from_wall_street_journal/ If you PM me I can send you a PDF.

 

[Nightcap]

My largest holding in my half-vast fortune is VASGX, one of Vanguard's LifeStrategy funds.

With all respect to sengsational, the "Institutional Risk" is roughly equivalent to the risk of a meteorite smacking down off the Eastern seaboard. Non-zero, but it doesn't bear consideration.

 

[Investornew]

How many stocks do you think are in an index fund? The answer is hundreds. That is my definition of diversification

Thanks. That clears it up for me.

A year ago, I didn't even know the difference between stocks and bonds. I didn't even know what they were! So I am learning all the time.

 

[Investornew]

Just curious, how did the Edward Jones mutual funds do vs if you had stayed where you were?

I did much better at Vanguard, but I didn't realize that. After I put my IRAs with Jones, I realized they are doing mediocre. But my Jones adviser said he could help me make a lot of money. I've had all my investments with Edward Jones now about two months. He told me not to switch without talking to him first. I feel bad going behind his back but I'd rather not tell him first.

 

[foxfirev5]

This thread is a little scary to me. I would suggest the OP or any others in this position do their own research and not rely on a website such as this for this level of advice.

 

[Investornew]

There is "institutional risk" of having all your eggs in the single Vanguard basket. Maybe the day you need the money, their system will be down, but Fidelity's will be up....not much risk, but non-zero.

Actually, I do worry about putting everything with Vanguard, also. Seems I should spread things around among other companies, Fidelity, Schwab, etc.

 

[travelover]

This thread is a little scary to me. I would suggest the OP or any others in this position do their own research and not rely on a website such as this for this level of advice.

Yea, much better off with the likes of Edward Jones or Ameriprise to set you on the straight and narrow. After all, we have so much to gain by steering him wrong as opposed to those saints.

 

[samclem]

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I did much better at Vanguard, but I didn't realize that. After I put my IRAs with Jones, I realized they are doing mediocre. But my Jones adviser said he could help me make a lot of money. I've had all my investments with Edward Jones now about two months. He told me not to switch without talking to him first. I feel bad going behind his back but I'd rather not tell him first.

You need to look out for your money, no one else will. That Edward Jones advisor has spent a long time learning how to make clients feel guilty for leaving--which the smart ones do very quickly after learning about the fees Jones charges. Get back to Vanguard and don't feel one bit guilty. >You can bet he is taking advantage of you, and you are paying much higher fees than you'd pay at Vanguard (or, for the most part, at Schwab or Fidelity).< The longer you leave your money there, the more you'll pay. You can contact Vanguard, have them arrange to "pull" your funds from Edward Jones back to them, and you won't need to talk to the guy at Edward Jones at all. If he calls, just politely him you have changed your mind. Do not let him convince you to keep your money there. If you need some convincing, use the search function on this site and look up the horror stories other people report from Edward Jones, Ameriprise, etc. Sometimes when the client wises up and pills the plug the "friendly" advisor gets downright nasty with the client--"Hey--the sap is taking his money, now I'm not going to be buying that new Mercedes!" You owe him nothing--get mad about this, don't feel any remorse about escaping from them.

Keep reading the Boglehead book, it will provide some great info. But if you just took all you money out of Edward Jones and put it in a single Vanguard Target Date fund (for the year you plan to retire), you'd be well ahead of 80% of the investors in the US, and >far< ahead of the average Edward Jones client. The Target Date funds have a mix of US stocks, US bonds, foreign stocks, foreign bonds etc. So, you own a little bit of many thousands of companies/bonds, very well diversified. Vanguard will rebalance the funds every day (so, if stocks go down relative to bonds, you'll automatically buy more of the now-cheaper stocks without ever havign to think about it). Vanguard will also slowly modify the mix as you get closer to retirement, and they charge very low fees. They are a very good "set it and forget it" way to invest. At the very least, it;s a super place to park your money while you read the Bogleheads books and decide for yourself if you want to change anything. Frankly, most people would probably be better off just to stick with the Vanguard Target date Fund rather than getting fancy to try to beat the market, follow hunches, or bet on some great stock they saw on TV or that their brother-in-law recommended.

 

[pb4uski]

Actually, I do worry about putting everything with Vanguard, also. Seems I should spread things around among other companies, Fidelity, Schwab, etc.

You need to do more reading to understand what diversification really means. Institutional risk is so far down the list for me that I don't even think about it.... I have everything with Vanguard and see no value to spreading it around and would say the same thing if someone had everything with Fido or a couple others.

Ameriprise or Edward Jones or others on the other hand are a whole different kettle of stinking fish.

 

[CountryGal]

E
If you need some convincing, use the search function on this site and look up the horror stories other people report from Edward Jones, Ameriprise, etc. Sometimes when the client wises up and pills the plug the "friendly" advisor gets downright nasty with the client--"Hey--the sap is taking his money, now I'm not going to be buying that new Mercedes!" You owe him nothing--get mad about this, don't feel any remorse about escaping from them.

Please add Thrivent to your search list. Fees are high and I have seen some horror stories. Had to talk someone out of investing with them...

 

[Investornew]

E
Vanguard will rebalance the funds every day (so, if stocks go down relative to bonds, you'll automatically buy more of the now-cheaper stocks without ever havign to think about it). Vanguard will also slowly modify the mix as you get closer to retirement, and they charge very low fees. They are a very good "set it and forget it" way to invest. At the very least, it;s a super place to park your money while you read the Bogleheads books and decide for yourself if you want to change anything.

Thanks. I regret now having left Vanguard but I see my IRA not doing as well . I think legally I'm allowed to move my IRA right back anytime I want, no tax penalties.

It's different with 529 plans. You can only move a 529 plan once per year. Since I moved the 529 plan to EJ this year, it has to stay with them for about ten more months. Which means I can't just walk completely away from EJ, even after transferring my IRA. I'd love to make a clean break if I could, though. In the next 10 months who knows what they'll do to that 529.

Most of my friends do not invest money except in their 401K through their job, so I can't talk to them about it. Most of them don't even know what a 529 plan is. So for me, it's the internet message boards and digging through books.

 

[samclem]

I think legally I'm allowed to move my IRA right back anytime I want, no tax penalties.

Yes, you can roll your IRA funds to a new custodian as often as you wish.

It's different with 529 plans. You can only move a 529 plan once per year. Since I moved the 529 plan to EJ this year, it has to stay with them for about ten more months.

Can you explain about this 529 plan? How did funds from a 529 college savings plan get to Edward Jones?

PS: If/when you talk to your Jones "advisor," I'd recommend steering clear of any discussion about why you are leaving. He'll have an answer for anything you say (We have funds that do better than Vanguard! You need professional management! ) It is all hogwash, but you'd spend months debating him, he's practiced the whole spiel many times. It is your money, just go and do not look back.

 

[Investornew]

Yes, you can roll your IRA funds to a new custodian as often as you wish.


Can you explain about this 529 plan? How did funds from a 529 college savings plan get to Edward Jones?

Yes. This 529 plan was originally with Fidelity. The Edward Jones adviser said it would do better with them, they use Blackrock. So I moved it to Edward Jones from Fidelity. That was a couple of months ago.

I want to move it out of Jones, now but am restricted due to the 12 month rule.

 

[samclem]

I want to move it out of Jones, now but am restricted due to the 12 month rule.

Do you mind sharing which state's 529 program you are in?