Could someone help explain these Mutual Fund expenses?

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"?
 
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/Fu...&fundFamilyId2=8255&FundId1=0040&FundId2=2586
 
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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!!!!
 
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?
 
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?
 
Art G said:
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?
Click to expand...

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

Anywho....I note this article omits the last five years.
Click to expand...

Did you even read FD's link. For the 5 years ending 3/31/08, AIVSX [without the load] trailed VFINX.
 
FinanceDude said:
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........:)
Click to expand...

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? ::)
 
ats5g said:
I think you mean a 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.
Click to expand...


LOL! I was referring to your article. Did you even read your own article?:cool:
 
cute fuzzy bunny said:
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? ::)
Click to expand...

Seriously:confused: 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?
 
Art G said:
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?
Click to expand...

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.
 
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.
 
sarahsays said:
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.
Click to expand...

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.
 
cute fuzzy bunny said:
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.
Click to expand...


Whatever, it's your returns. I just hate to see a whole group of people gathering false information from someone so closed minded.
 
I don't expect to change your mind, ArtG, but I believe you are wrong.

To restate my basic position (and it s one held by many others): Sure, some managed funds will outperform their relevant indexes. It's got to be that way. However, very (very) few will outperform their indexes on a risk-adjusted basis over a period of years. In fact, the number which do so is what would be predicted by random chance. An investor's ability to predict which managed funds will outperform, and when they will stop, is no better than chance. Thus, it is not worth paying the extra expenses of a managed fund.
**************************
"In a study of equity mutual funds, Elton, Gruber, Hlavka and Das examine all funds that existed for the period of 1965-1984, 143 funds in all. These funds are compared to the set of index funds—big stocks, small stocks and fixed income—that most closely correspond to the actual investment choices made by the mutual funds. The result: on average these funds underperform the index funds by a whopping 159 basis points a year. Not a single fund generated positive performance that was statistically significant. In the most recent and comprehensive study done to date, a dissertation at the University of Chicago, Mark Carhart studies a total of 1,892 funds that existed any time between 1961 and 1993. After adjusting for the common factors in returns, an equal-weighted portfolio of the funds underperformed by 1.8% per year." (from a speech by Rex Sinquefeld, link below)
*****************
So, these fund managers, who spend all their days trying to beat the market with the benefit of millions of dollars of resources can't consistently do it. But, somehow, an investor is supposed to believe he can discern the most talented ones, the ones who will be successful despite all the odds? And this investor is supposed to have enough faith in the strength of his prediction that he is willing to plunk down his retirements savings based on this judgement? And, be charged .5% to 2% each year for that privilege?

Anecdotes of one person or another person's experience are largely immaterial. My cousin won the lottery--does that mean he is a skilled lottery player? Does it mean I should pick the same numbers he picks? Does it mean playing the lottery is a good idea?

Fact: Most managed funds in most categories underperform their relevant index most years.

If you are interested in some good reading on the subject, I recommend:

- The book "Bogle on Mutual Funds"
- The article at:"Active vs. Passive Management
(Rex Sinquefeld's quote above came from this piece.)
- The book "The Intelligent Asset Allocator" (William Bernstein)

But, I am happy that there are stock pickers and those who believe that active management of mutual funds is worth the cost. The activities of these individuals is what keeps the market efficient, and what allows indexing to work.

It is worth noting that most people who now believe in passive management/indexing once believed as you do now. I used to. Then, I got this little thingy installed in my head . . .
 
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Art G said:
LOL! I was referring to your article. Did you even read your own article?:cool:
Click to expand...

Yes, I did. It doesn't appear that you did though. And I quote [From 1973-2003]:

While it outpaced the market by 0.7% (14.5% vs. 13.8%) for the period, after adjusting for the sales charge, it fell slightly behind, with a net annual return of 13.7%.
Click to expand...
And in case you're a visual learner:

sp20040413_9.gif



- Alec
 
ats5g said:
Yes, I did. It doesn't appear that you did though. And I quote [From 1973-2003]:

And in case you're a visual learner:

sp20040413_9.gif



- Alec
Click to expand...

Well I quoted directly from your article also, and if you note, that box above is dated 1978-2003. Not 1973-2003 as we were discussing.
 
samclem said:
I don't expect to change your mind, ArtG, but I believe you are wrong.

To restate my basic position (and it s one held by many others): Sure, some managed funds will outperform their relevant indexes. It's got to be that way. However, very (very) few will outperform their indexes on a risk-adjusted basis over a period of years. In fact, the number which do so is what would be predicted by random chance. An investor's ability to predict which managed funds will outperform, and when they will stop, is no better than chance. Thus, it is not worth paying the extra expenses of a managed fund.
**************************
"In a study of equity mutual funds, Elton, Gruber, Hlavka and Das examine all funds that existed for the period of 1965-1984, 143 funds in all. These funds are compared to the set of index funds—big stocks, small stocks and fixed income—that most closely correspond to the actual investment choices made by the mutual funds. The result: on average these funds underperform the index funds by a whopping 159 basis points a year. Not a single fund generated positive performance that was statistically significant. In the most recent and comprehensive study done to date, a dissertation at the University of Chicago, Mark Carhart studies a total of 1,892 funds that existed any time between 1961 and 1993. After adjusting for the common factors in returns, an equal-weighted portfolio of the funds underperformed by 1.8% per year." (from a speech by Rex Sinquefeld, link below)
*****************
So, these fund managers, who spend all their days trying to beat the market with the benefit of millions of dollars of resources can't consistently do it. But, somehow, an investor is supposed to believe he can discern the most talented ones, the ones who will be successful despite all the odds? And this investor is supposed to have enough faith in the strength of his prediction that he is willing to plunk down his retirements savings based on this judgement? And, be charged .5% to 2% each year for that privilege?

Anecdotes of one person or another person's experience are largely immaterial. My cousin won the lottery--does that mean he is a skilled lottery player? Does it mean I should pick the same numbers he picks? Does it mean playing the lottery is a good idea?

Fact: Most managed funds in most categories underperform their relevant index most years.

If you are interested in some good reading on the subject, I recommend:

- The book "Bogle on Mutual Funds"
- The article at:"Active vs. Passive Management
(Rex Sinquefeld's quote above came from this piece.)
- The book "The Intelligent Asset Allocator" (William Bernstein)

But, I am happy that there are stock pickers and those who believe that active management of mutual funds is worth the cost. The activities of these individuals is what keeps the market efficient, and what allows indexing to work.

It is worth noting that most people who now believe in passive management/indexing once believed as you do now. I used to. Then, I got this little thingy installed in my head . . .
Click to expand...

Sam, I appreciate your thoughts, however, this is what I think is continually getting lost in the discussion. We are not talking about the average mutual fund vs the index, we are speaking about a particular fund which has already proven to have beaten that same index year after year. Hence, we are not picking lottery numbers for a one time hit, nor are we trying to pick that needle out of a haystack, we are doing exactly what you are asking for....using historical facts and basis to pick those funds that HAVE outperformed on numerous occasions.
If you're going to state your reason for buying the index, that the index has outperformed most funds over time, then why in the world wouldn't you use that same reason for selecting those funds that haven't?
If I go to my favorite restaurant for a steak dinner every anniversary because it has always been consistently a great meal, why would I avoid next year because it may not be?
I swear, I'm trying to find some sort of relative comparisons that just might hit home with some people.
How about this one, I've been happily and faithfully married to my wife for twenty-six years now, should she now assume this is the year I start cheating on her because there's no way we can keep up this streak?
 
Art G said:
How about this one, I've been happily and faithfully married to my wife for twenty-six years now, should she now assume this is the year I start cheating on her because there's no way we can keep up this streak?
Click to expand...

ROTFLMAO!!! :D:D:D
 
Bestwifeever said:
I'm happy with my hamburger but you think I could get a better DH?
Click to expand...

Well if you've been settling for the average DH, then you may be able to do better. Of course, you could do worse. I'd check out the history of the potential DH in question to see if he's a decent provider and doesn't believe in physical abuse. Of course, this is no guarantee that he won't beat you in the future.;)
 
Art G said:
We are not talking about the average mutual fund vs the index, we are speaking about a particular fund which has already proven to have beaten that same index year after year. Hence, we are not picking lottery numbers for a one time hit, nor are we trying to pick that needle out of a haystack, we are doing exactly what you are asking for....using historical facts and basis to pick those funds that HAVE outperformed on numerous occasions.
Click to expand...

I do understand your position (that by analyzing past performance, you can determine which managed funds are likely to outperform in the future), and I even understand why many people believe this. I just no longer believe this myself anymore.
 
Art G said:
Well if you've been settling for the average DH, then you may be able to do better. Of course, you could do worse. I'd check out the history of the potential DH in question to see if he's a decent provider and doesn't believe in physical abuse. Of course, this is no guarantee that he won't beat you in the future.;)
Click to expand...

Dr. Phil tells me that past performance IS a reliable indicator of future behavior--but only for people.
 
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