4 ms·

I read a really interesting thread recently, can't find it but the gist of it was Index Funds appreciating isn't guaranteed (as they're pitched) and localizing

I read a really interesting thread recently, can't find it but the gist of it was Index Funds appreciating isn't guaranteed (as they're pitched) and localizing at a country level is a mistake for the future w/giant "emerging" economies in China / India. The counter "example"used was the Nikkei index which peaked in ~1990 and still hasn't recovered: https://www.macrotrends.net/2593/nikkei-225-index-historical-chart-data https://www.macrotrends.net/2593/nikkei-225-index-historical... The argument was to leverage index funds as a component of portfolio along with real estate, etc. Would be curious the HN view.

idunno246 8y ago
i dont know anybody that pitches index funds as guaranteed appreciation, just that they will do average for cheaper. There are plenty of index funds that take into account other countries, REIT indexes that hold real estate, etc. Even if you use just a SP500 index, you get some global exposure as well - disney, coke, pepsi, etc are all worldwide brands. Lets say its a given you can do better by adding more stocks, actively managed funds, actual real estate, etc, for the simplicity of it you get 80% of the way there with just one or two simple indexes.
- maxlybbert 8y ago
  Different people have different ideas of what an “index fund” means. Personally, I don’t consider it an index fund or a benchmark unless there’s a definition of what the fund tracks ( https://web.stanford.edu/~wfsharpe/art/active/active.htm https://web.stanford.edu/~wfsharpe/art/active/active.htm ). And when there is, and I want to invest in that market, I expect to do better by paying a little money to accept the average return for that market than by paying more to try to get a better-than-average return (because to come out ahead, it has to be better by at least enough to pay for the higher fees). But you’re definitely right that “average return for the market” may not be positive.
Analemma_ 8y ago
My view is that this may be true in isolated circumstances, but you need to be very careful of the origin of this advice. In the last decade, as money has poured out of actively-managed funds and into indexes, people who make their living from management fees have gotten really worried and have sponsored a lot of submarine stories spreading misinformation or outright falsehoods about index funds. (The Wall Street Journal has been a frequent source of this stuff). Most times when I see an article skeptical of index funds it either quotes, or in some cases was literally written by, somebody managing an active fund which has seen big outflow recently- thus hitting them in the wallet. It makes it hard to take seriously that they're offering unbiased advice.
sgustard 8y ago
An index fund by definition just tracks an indicator. You don't have leave the USA to see a long-term decline; the Nasdaq is currently below its Feb 2000 peak. All index-fund investing advice includes diversification across several asset clases. (Insert plug for https://research.wealthfront.com/whitepapers/investment-methodology https://research.wealthfront.com/whitepapers/investment-meth...)
- rfinney 8y ago
  Nasdaq composite was 4698 in Feb 2000. Currently it is 6584. ( see here : https://finance.yahoo.com/quote/%5EIXIC/history?period1=946702800&period2=1546059600&interval=1mo&filter=history&frequency=1mo https://finance.yahoo.com/quote/%5EIXIC/history?period1=9467... )
  - sgustard 8y ago
    You're correct, but its inflation-adjusted Feb 2000 peak was 6970. Source: https://www.macrotrends.net/1320/nasdaq-historical-chart https://www.macrotrends.net/1320/nasdaq-historical-chart
zeroname 8y ago
> I read a really interesting thread recently, can't find it but the gist of it was Index Funds appreciating isn't guaranteed (as they're pitched) and localizing at a country level is a mistake for the future w/giant "emerging" economies in China / India. China has supposedly grown up to 10% GDP year on year and yet returns on China ETFs were terrible. The expectation of growth has been priced in long ago - possibly more growth than will actually take place. Plus, how would you know what the Chinese are up to? Do you speak Chinese? Are you going to follow Chinese news? If you're in the US, you get a much better impression of what's going on in the S&P500. Like, when your president is Donald Trump and he tells you to "buy the dip", you know it's time to reduce your exposure.

idunno246 8y ago

i dont know anybody that pitches index funds as guaranteed appreciation, just that they will do average for cheaper. There are plenty of index funds that take into account other countries, REIT indexes that hold real estate, etc. Even if you use just a SP500 index, you get some global exposure as well - disney, coke, pepsi, etc are all worldwide brands. Lets say its a given you can do better by adding more stocks, actively managed funds, actual real estate, etc, for the simplicity of it you get 80% of the way there with just one or two simple indexes.

maxlybbert 8y ago
Different people have different ideas of what an “index fund” means. Personally, I don’t consider it an index fund or a benchmark unless there’s a definition of what the fund tracks ( https://web.stanford.edu/~wfsharpe/art/active/active.htm https://web.stanford.edu/~wfsharpe/art/active/active.htm ). And when there is, and I want to invest in that market, I expect to do better by paying a little money to accept the average return for that market than by paying more to try to get a better-than-average return (because to come out ahead, it has to be better by at least enough to pay for the higher fees). But you’re definitely right that “average return for the market” may not be positive.

Analemma_ 8y ago

My view is that this may be true in isolated circumstances, but you need to be very careful of the origin of this advice. In the last decade, as money has poured out of actively-managed funds and into indexes, people who make their living from management fees have gotten really worried and have sponsored a lot of submarine stories spreading misinformation or outright falsehoods about index funds. (The Wall Street Journal has been a frequent source of this stuff). Most times when I see an article skeptical of index funds it either quotes, or in some cases was literally written by, somebody managing an active fund which has seen big outflow recently- thus hitting them in the wallet. It makes it hard to take seriously that they're offering unbiased advice.

sgustard 8y ago

An index fund by definition just tracks an indicator. You don't have leave the USA to see a long-term decline; the Nasdaq is currently below its Feb 2000 peak. All index-fund investing advice includes diversification across several asset clases. (Insert plug for https://research.wealthfront.com/whitepapers/investment-methodology https://research.wealthfront.com/whitepapers/investment-meth...)

rfinney 8y ago
Nasdaq composite was 4698 in Feb 2000. Currently it is 6584. ( see here : https://finance.yahoo.com/quote/%5EIXIC/history?period1=946702800&period2=1546059600&interval=1mo&filter=history&frequency=1mo https://finance.yahoo.com/quote/%5EIXIC/history?period1=9467... )
- sgustard 8y ago
  You're correct, but its inflation-adjusted Feb 2000 peak was 6970. Source: https://www.macrotrends.net/1320/nasdaq-historical-chart https://www.macrotrends.net/1320/nasdaq-historical-chart

zeroname 8y ago

> I read a really interesting thread recently, can't find it but the gist of it was Index Funds appreciating isn't guaranteed (as they're pitched) and localizing at a country level is a mistake for the future w/giant "emerging" economies in China / India. China has supposedly grown up to 10% GDP year on year and yet returns on China ETFs were terrible. The expectation of growth has been priced in long ago - possibly more growth than will actually take place. Plus, how would you know what the Chinese are up to? Do you speak Chinese? Are you going to follow Chinese news? If you're in the US, you get a much better impression of what's going on in the S&P500. Like, when your president is Donald Trump and he tells you to "buy the dip", you know it's time to reduce your exposure.