4 ms·

But that's not what index funds are at all. The S&P 500 re-balances every quarter and stocks are constantly being swapped out. It's much more likely that if yo

by mruts 8y ago

But that's not what index funds are at all. The S&P 500 re-balances every quarter and stocks are constantly being swapped out. It's much more likely that if you chose some stock in 1940s and never sold that you would have lost money than made money. The reason why the S&P 500 looks so good overtime is because the S&P 500 is actively managed. It is effectively crowd-sourced from the very best invest ideas of mutual funds and hedge funds.

kgwgk 8y ago
> S&P 500 re-balances every quarter and stocks are constantly being swapped out The “rebalancing” is just adding/removing stocks following the rules and turnover is pretty low.
- mruts 8y ago
  It also involves rebalancing the weights of each stock to account for stock splits, dividends, and change in market capitalization or the float number (the amount of shares on the public markets).
  - kgwgk 8y ago
    > It also involves rebalancing the weights of each stock to account for stock splits, No. > dividends, No. > and change in market capitalization No (at least for the changes related to price movements and not share count). > or the float number (the amount of shares on the public markets). The last one is the only valid concern. In the end turnover is quite low (a few percentage points per year, including additions/removals and adjustments, if I remember correctly).
    - mruts 8y ago
      https://en.wikipedia.org/wiki/S%26P_500_Index#Index_maintenance https://en.wikipedia.org/wiki/S%26P_500_Index#Index_maintena... I guess I was wrong about the splits, but everything else still holds.
      - kgwgk 8y ago
        Regular dividends are not on that list (only "special" dividends result in adjustments). And market cap changes are only relevant as far as the "change in outstanding shares" is concerned, which is not usually the main driver for market cap changes.
        mruts 8y ago
        The problems for an index are a little different than an ETF following an index. If you have to allocate capital behind the index, you have to do some more adjustments and the expense ratio is going to reflect that.

by mruts 8y ago

kgwgk 8y ago

> S&P 500 re-balances every quarter and stocks are constantly being swapped out The “rebalancing” is just adding/removing stocks following the rules and turnover is pretty low.

mruts 8y ago
It also involves rebalancing the weights of each stock to account for stock splits, dividends, and change in market capitalization or the float number (the amount of shares on the public markets).
- kgwgk 8y ago
  > It also involves rebalancing the weights of each stock to account for stock splits, No. > dividends, No. > and change in market capitalization No (at least for the changes related to price movements and not share count). > or the float number (the amount of shares on the public markets). The last one is the only valid concern. In the end turnover is quite low (a few percentage points per year, including additions/removals and adjustments, if I remember correctly).
  - mruts 8y ago
    https://en.wikipedia.org/wiki/S%26P_500_Index#Index_maintenance https://en.wikipedia.org/wiki/S%26P_500_Index#Index_maintena... I guess I was wrong about the splits, but everything else still holds.
    - kgwgk 8y ago
      Regular dividends are not on that list (only "special" dividends result in adjustments). And market cap changes are only relevant as far as the "change in outstanding shares" is concerned, which is not usually the main driver for market cap changes.
      - mruts 8y ago
        The problems for an index are a little different than an ETF following an index. If you have to allocate capital behind the index, you have to do some more adjustments and the expense ratio is going to reflect that.