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Index funds - what are your experiences?

 
 
somebody
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      11-19-2010, 12:48 PM
I was talking with my sister last night and the subject of index funds
came up, she
is a firm believer and extolled the virtues of them (mainly lower
costs overall)
vs. a traditional stock fund. What has been your experiences in this
area?

The subject came up in the context of a rather large inheritence that
will be
distributed to myself and siblings before the end of this year.

 
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Bill Woessner
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      11-19-2010, 02:47 PM
On Nov 19, 7:48*am, somebody <(E-Mail Removed)> wrote:
> What has been your experiences in this area?


Personally, I don't believe you can consistently beat the market.
Even if you could, it would require a lot of time and effort to do
so. I'm not willing to put in that time and effort, nor am I willing
to pay someone else to do so. Therefore, I stick with index funds.

--Bill

 
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Bill
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      11-19-2010, 03:37 PM
Read "The Only Guide to a Winning Investment Strategy That You'll Ever
Need" by Larry Swedroe not so much for what he says but for all of the
citations to academic research on index funds.

--
.Bill.

 
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dumbstruck
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      11-19-2010, 04:26 PM
If you are talking a garden variety domestic large cap fund, I think
you'll find the actively managed ones with recent outperformance of
sp500 are just on a kind of 2 year lucky streak. It appears cyclical,
especially if you overlay a graph of them vs an index. The current
good ones were duds a few years ago and v.v. for current duds.
Therefore the ones that seduce you now are most likely to disappoint
next.

You don't have to take anybody's word on that - just play with long
term graph overlays with some fund candidates. Good learning exercise
and preparation.

Broad index funds may be more consistent and save a bit of expense,
but they aren't the ultimate. They offer an easy start, but with time
you may see how both kinds of funds fail to take advantage of obvious
macro trends, which you can handle better by juggling several sector
index funds.

 
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dumbstruck
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      11-19-2010, 05:14 PM
On Nov 19, 5:37*am, "Bill" <(E-Mail Removed)> wrote:
> Read "The Only Guide to a Winning Investment Strategy That You'll Ever
> Need" by Larry Swedroe not so much for what he says but for all of the
> citations to academic research on index funds.


Or for new-age types allergic to books and partial to videos, I think
at least lecture 4 of
http://academicearth.org/courses/financial-markets or
http://oyc.yale.edu/economics/financial-markets/
has great insights on portfolios, and how mutual funds aren't
supposed to be stock pickers at all, but rather risk and return
modulators.

This is by the Yale titan of plain-financial-talking who you have seen
interviewed a dozen times on TV, being the only adult in the newsroom
(and I guess half owner of the Shiller house index or whatever). He
covers insurance and much else, usually explaining how current
practices have gone awry from their theoretical sweet spot. This is an
actual class recording where he comes across rather more left wing
than his avuncular centrist TV persona, but a pragmatist in either
case.

 
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HW \Skip\ Weldon
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      11-19-2010, 06:59 PM
On Fri, 19 Nov 2010 08:47:38 CST, Bill Woessner <(E-Mail Removed)>
wrote:

>Personally, I don't believe you can consistently beat the market.
>Even if you could, it would require a lot of time and effort to do
>so. I'm not willing to put in that time and effort, nor am I willing
>to pay someone else to do so. Therefore, I stick with index funds.


I agree, and prefer taking a nap, reading a good book, riding my bike,
walking my dog or going on a trip. Besides, the older I get and the
more cycles I experience, I'm not convinced there are any stock
picking experts - least of all me.

 
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Igor Chudov
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      11-19-2010, 11:46 PM
On 2010-11-19, somebody <(E-Mail Removed)> wrote:

> I was talking with my sister last night and the subject of index
> funds came up, she is a firm believer and extolled the virtues of
> them (mainly lower costs overall) vs. a traditional stock fund.
> What has been your experiences in this area?
>
> The subject came up in the context of a rather large inheritence
> that will be distributed to myself and siblings before the end of
> this year.


Index funds are some of the most honest Wall Street inventions. A
great way to invest. My kids' UTMA money is 100% in a couple of stock
index funds.

i

 
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FranksPlace2
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      11-20-2010, 02:17 PM
On Nov 19, 6:48*am, somebody <(E-Mail Removed)> wrote:
> I was talking with my sister last night and the subject of index funds
> came up, she
> is a firm believer and extolled the virtues of them (mainly lower
> costs overall)
> vs. a traditional stock fund. *What has been your experiences in this
> area?
>
> The subject came up in the context of a rather large inheritence that
> will be
> distributed to myself and siblings before the end of this year.


I subscribe to a newsletter which has a Monthly Upgrader Portfolio
(MUP) which holds growth mutual funds and typically has 1 or 2 trades
a month. Below are the performance numbers:

Performance as of 4/30/10 MUP S&P 500
1 Month Return: 1.9% 1.6%
Year to Date (YTD) 7.7% 7.1%
12 Month Return: 40.0% 38.8%
Since Incep (3/25/98) Annualized: 10.6% 2.4%

Performance as of 10/31/10 MUP S&P 500
1 Month Return: 3.1% 3.8%
Year to Date (YTD) 5.1% 7.6%
12 Month Return: 12.9% 16.2%
Since Incep (3/25/98) Annualized: 9.9% 2.3%

So in April the MUP was ahead of the S&P 500 but in November it is
behind (which is unusual.) However when you look at 13 year
performance MUP is ahead by a factor of four.

 
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dumbstruck
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      11-20-2010, 07:47 PM
On Nov 20, 4:17*am, FranksPlace2 <(E-Mail Removed)> wrote:
> So in April the MUP was ahead of the S&P 500 but in November it is
> behind (which is unusual.) *However when you look at 13 year
> performance MUP is ahead by a factor of four.


I wonder if that is the fundx newsletter; their funds can automate
that process and did great for a while but stumbled lately and gave a
return advantage a bit less than you quote: http://www.fundxfunds.com/fundx.cfm

I forget how to annualize, but here is a switching service that surely
must give even better results and has increased 10 fold over the last
dozen or so years of flatish sp500 (with very little backsliding):
http://www.decisionmoose.com/Moosistory.html

The switch instructions are free, but unfortunately the analysis
behind the switches has recently required a token payment because the
author found his freebie statistics were being resold. He does very
well in choppy or bear markets, but is too conservative for my tastes
in bull markets. This might work well to follow for 20% of your
portfolio, which would do more than pick "better" funds, but fine tune
asset allocation since it delves into bonds and gold as well as stock
funds.

Unfortunately leaving the switching to an active fund manager doesn't
seem to work well - they seem to get too timid, especially in down
markets. Then they abandon their stated strategy and follow the sp500
to avoid stigma of underperforming for example. With that, they can't
bounce back properly.

I think active switching by yourself works well when you widen your
scope away from domestic big cap growth funds, which seems to take you
to a less efficiently priced market. I am just getting into the part
of the Yale course where he describes the theory about the near
impossibility of beating sp500, and how his research shows that is
quite wrong. I know it can be easy to beat sp500 much of the time from
both personal experience and observing switching services such as
fundx and decisionmoose.

 
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FranksPlace2
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      11-21-2010, 03:27 PM
On Nov 20, 1:47*pm, dumbstruck <(E-Mail Removed)> wrote:
> On Nov 20, 4:17*am, FranksPlace2 <(E-Mail Removed)> wrote:
>
> > So in April the MUP was ahead of the S&P 500 but in November it is
> > behind (which is unusual.) *However when you look at 13 year
> > performance MUP is ahead by a factor of four.

>
> I wonder if that is the fundx newsletter; their funds can automate
> that process and did great for a while but stumbled lately and gave a
> return advantage a bit less than you quote:http://www.fundxfunds.com/fundx.cfm
>
> I forget how to annualize, but here is a switching service that surely
> must give even better results and has increased 10 fold over the last
> dozen or so years of flatish sp500 (with very little backsliding):http://www.decisionmoose.com/Moosistory.html
>


It is fundx.

Based on my arithmetic, it looks like the moose site performance is
about 17.3% annualized, quite good for 14 years.

 
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