Index funds - what are your experiences?

Discussion in 'Financial Planning' started by somebody, Nov 19, 2010.

  1. somebody

    somebody Guest

    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.
     
    somebody, Nov 19, 2010
    #1
    1. Advertisements

  2. On Nov 19, 7:48 am, somebody <> 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
     
    Bill Woessner, Nov 19, 2010
    #2
    1. Advertisements

  3. somebody

    Bill Guest

    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.
     
    Bill, Nov 19, 2010
    #3
  4. somebody

    dumbstruck Guest

    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.
     
    dumbstruck, Nov 19, 2010
    #4
  5. somebody

    dumbstruck Guest

    On Nov 19, 5:37 am, "Bill" <> 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.
     
    dumbstruck, Nov 19, 2010
    #5
  6. On Fri, 19 Nov 2010 08:47:38 CST, Bill Woessner <>
    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.
     
    HW \Skip\ Weldon, Nov 19, 2010
    #6
  7. somebody

    Igor Chudov Guest

    On 2010-11-19, somebody <> 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
     
    Igor Chudov, Nov 19, 2010
    #7
  8. somebody

    FranksPlace2 Guest

    On Nov 19, 6:48 am, somebody <> 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.
     
    FranksPlace2, Nov 20, 2010
    #8
  9. somebody

    dumbstruck Guest

    On Nov 20, 4:17 am, FranksPlace2 <> 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.
     
    dumbstruck, Nov 20, 2010
    #9
  10. somebody

    FranksPlace2 Guest

    On Nov 20, 1:47 pm, dumbstruck <> wrote:
    > On Nov 20, 4:17 am, FranksPlace2 <> 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.
     
    FranksPlace2, Nov 21, 2010
    #10
  11. somebody

    ps56k Guest

    "somebody" <> wrote in message
    news:...
    >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.
    >


    you actually have a couple of questions... the last not being really
    addressed.

    Large Inheritence...
    We just went thru this with my wife's parents,
    and you need to be careful for any required IRS taxes...
    We were told to keep liquid 50% for any potential estate clawback.
    Where are the funds coming from - Insurance, IRA, other investment holdings
    ?

    Index Funds -
    You can go after index funds - but the follow up question
    would be what sector ? and are you going to spread it around ?

    Using Vanguard as an example -
    VBMFX (bonds) VGTSX (global stock)

    or there are 9 SPDR sectors -
    http://www.sectorspdr.com/
     
    ps56k, Nov 21, 2010
    #11
  12. somebody

    dumbstruck Guest

    On Nov 21, 5:27 am, FranksPlace2 <> wrote:
    > It is fundx.
    >
    > Based on my arithmetic, it looks like the moose site performance is
    > about 17.3% annualized, quite good for 14 years.

    But it appears you missed his tripling up to 2000 and then zeroing
    that out to reflect his change to etfs. So I annualize his 14 year
    returns to 26.1%, while the sp500 was nearly brain dead!!! And note
    again that his backsliding was near zero except for a recent couple
    weeks (some say low variance is as important as returns, so might try
    a var calculation).

    Details: Since he reset $275,417 down to $100,000 in 2000, I multiply
    his current results 2.75417 x 931 889 = 2 566 580.73 . Since that is
    over 25 fold in just over 14 years, I conservatively calculate
    (25.66580731^(1 / 14)) - 1 = 0.260863896 .

    Just for a sanity check without the fudge factors, I recalculate the
    run from 2000 up to his 2009 peak and get (10.13505^(1 / 9.5)) - 1 =
    0.276075616 . So 27.6 % annualized returns which is about the same,
    although avoids his one time recent 10% loss.

    Only one loss is amazing thru the choppy and bear markets we had, and
    that is thru the technique of liquidating stock allocations as
    appropriate. It is disgraceful that practically no fund does that
    competently. Most even rule it out, but those that do asset
    allocation are timid bowls of jelly at reinvest times.

    Look at this pathetic flatline from fundx tactical fund
    http://www.fundxfunds.com/tactx.cfm . Their reason-for-being is to
    liquidate on downturns, which they failed to do, and reinvest on
    upturns, which they did for a couple weeks then flatlined (in cash)
    horribly, even until now.

    Similarly look at Hussman fund which has a very disciplined long/short
    hedging approach. Don't presume L/S skepticism until reading their
    discerning approach or seeing their fabulous long term results (over
    the red flatline sp500): http://www.hussmanfunds.com/pdf/hsgperf.pdf .
    But look at the period after the 2009 crash. Their stock returns have
    been fabulous (in purple) giving many times the sp500 bounceback, but
    as you can see in blue they hedged it all out! I don't understand why
    - if they lost the nerve of their models and overode it or what.

    I was on realtime record here of systematically liquidating in
    stepwise fashion during the crash, and then getting back in with two
    fisted (although stepwise) enthusiasm in the rebound. I don't
    understand why funds whose job is to do that cannot, and throw away
    money. Maybe it is because with other peoples money you lose your
    nerve to stand up to criticism for doing right. So that is why I
    conceded to the OP that you might as well go along with index funds
    until you have the interest and knowledge to trade yourself.

    Granted, I do hate having to watch and switch sectors (usually
    geographic ones rather than industry types) and juggle allocation
    levels, but no active manager seems to do the obvious moves. I even
    got criticism here for selldowns then buybacks because of costs in
    commissions, but preserving capital in a downturn of indeterminate
    depth and longevity is of supreme importance to those not on fat-cat
    salaries.

    I also took complaints years earlier (maybe under different handle)
    for claiming or even dreaming to outperform sp500. So I have made note
    of example plays in real time here, such as well timed buying then
    selling of commodities. And pointed out the stratospheric performances
    done by others on record with similar trend following approaches. But
    I would concede in this "planning" forum that you cannot plan on
    overperforming - only strive for it, if you so choose.

    Profitable active investing is very feasible. Unfortunately it is hard
    to have this done for you. If you do it as an amateur, I don't think
    it pays to battle sp500 on it's own terms (large cap domestic) because
    the professionals know these too well. Consider more fringe things
    like small cap (see outperformance on fundx chart) or foreign stocks
    or commodities, etc. But first take years of just watching and testing
    your instincts against reality over cycles, or at least making small
    commitments.
     
    dumbstruck, Nov 22, 2010
    #12
  13. somebody

    FranksPlace2 Guest

    On Nov 21, 6:28 pm, dumbstruck <> wrote:
    "> But it appears you missed his tripling up to 2000 and then zeroing
    > that out to reflect his change to etfs. So I annualize his 14 year
    > returns to 26.1%, while the sp500 was nearly brain dead!!! And note
    > again that his backsliding was near zero except for a recent couple
    > weeks (some say low variance is as important as returns, so might try
    > a var calculation)."

    ...
    >
    >

    "> Profitable active investing is very feasible. Unfortunately it is
    hard
    > to have this done for you."


    So why not just follow the Moose with a portion of your portfolio?

    Frank
     
    FranksPlace2, Nov 22, 2010
    #13
    1. Advertisements

Want to reply to this thread or ask your own question?

It takes just 2 minutes to sign up (and it's free!). Just click the sign up button to choose a username and then you can ask your own questions on the forum.
Similar Threads
  1. Paul F

    Uk All Share Index and Other UK Index Downloads

    Paul F, Apr 20, 2006, in forum: Microsoft Money UK
    Replies:
    0
    Views:
    253
    Paul F
    Apr 20, 2006
  2. S. S.
    Replies:
    1
    Views:
    1,880
    Richard McBane
    Aug 12, 2004
  3. Green Eyeshade

    QWin/2010 slow -- your experiences?

    Green Eyeshade, Aug 29, 2010, in forum: Accounting Software
    Replies:
    1
    Views:
    589
    spatesw
    Oct 16, 2010
  4. Phil Hampson
    Replies:
    8
    Views:
    311
    Phil Hampson
    Jan 7, 2004
  5. Replies:
    0
    Views:
    416
Loading...

Share This Page