6 ms·

> I don't think that's entirely true. When most people talk about investing in index funds they're largely talking about funds like eg. $SPY, not total market f

> I don't think that's entirely true. When most people talk about investing in index funds they're largely talking about funds like eg. $SPY, not total market funds like $VTI. My personal performance of investing in all three categories (total market index, S&P 500 index, NASDAQ-100 index) matches every chart you can find online over last 5 years; the total index funds are carrying the baggage of all that "not S&P" weight and are worse returns than the 500, with the 100 achieving almost twice the performance as the 500 (near 24% returns over 5y). The new "target retirement date" funds are falling below all three with the highest expenses and lowest returns, worse than a generic total market fund, $0.02 anecdata from a lifetime passive investor in index funds. (I'm still in the red this year on small cap specific and world growth and similar "diversification" funds, they're by far the biggest money wastes compared to passive index fund investing in my portfolio)

throw0101a 6y ago
> matches every chart you can find online over last 5 years; the total index funds are carrying the baggage of all that "not S&P" weight and are worse returns than the 500, with the 100 achieving almost twice the performance as the 500 (near 24% returns over 5y). Looking at only the last five years is myopic and not wise. You may want to look up the "Lost Decade" of the S&P 500 from 2000 to 2009. See also this recent <15 minute video from Index Fund Advisors entitled "50 Year Market Review" for a longer perspective: * https://www.youtube.com/watch?v=M82Veytnsfw https://www.youtube.com/watch?v=M82Veytnsfw
- gravitas 6y ago
  > Looking at only the last five years is myopic and not wise. You may want to look up the "Lost Decade" of the S&P 500 from 2000 to 2009. I'm 50+, my money has been moving around these funds since the late 90s. :) I lived as a tech worker through all the 2000-2010 had to offer us, everyone took a beating not just index funds. Besides that point, holding a fund 5 years is normal - it's not like you have to keep a fund longer than 5, make your money and let it go. Roll it over into something else - passive investing does not mean ignoring your investing, you must still tend to your crops from time to time.
  - throw0101a 6y ago
    > I lived as a tech worker through all the 2000-2010 had to offer us, everyone took a beating not just index funds. Seems to have been not too bad if one had some bonds and rebalanced: * https://www.forbes.com/sites/investor/2010/12/17/the-lost-decade-was-a-golden-age-if-you-rebalanced/ https://www.forbes.com/sites/investor/2010/12/17/the-lost-de... > Besides that point, holding a fund 5 years is normal - it's not like you have to keep a fund longer than 5, make your money and let it go. Why would one jump from one fund to another? > Roll it over into something else - passive investing does not mean ignoring your investing, you must still tend to your crops from time to time. Tend in what way? I can think of perhaps rebalancing so if you're doing a multi-fund setup with particularly desired asset allocation (bonds, equities: US, world, EM). But if you're using (say) a target date fund, what's there to do? In Canada we have "all-in-one" ETFs that have particular asset allocations which do rebalancing internally: * https://milliondollarjourney.com/all-in-one-etfs-battle-vanguard-vs-ishares-vs-bmo.htm https://milliondollarjourney.com/all-in-one-etfs-battle-vang... * https://www.savvynewcanadians.com/all-in-one-etf-portfolios-for-investors-canada/ https://www.savvynewcanadians.com/all-in-one-etf-portfolios-... Perhaps as one moves closer to retirement then change the bond component, but what is there to otherwise tend?
    - gravitas 6y ago
      > Tend in what way? I can think of perhaps rebalancing so if you're doing a multi-fund setup with particularly desired asset allocation (bonds, equities: US, world, EM). But if you're using (say) a target date fund, what's there to do? (General response, just quoting this part) - life is messy, things change around you. My 401k for example (throughout different jobs) bounces around, I've had Schwab, WellsFargo, Vanguard (even some no-brand way back when) who each offer their own strategies; some having severely limited options, some having open playing fields - in 2000 WellsFargo may have offered 1 of 3 choices IIRC. In 2020, they have 30 choices (many are target date funds) - but Schwab is open-ended, do what you want; when your money rolls over from one to the other, it's usually a liquidation and cash transfer (although I've used in-kind for a Roth IRA, worked OK but not perfect - lost some cost basis data, had to repair). I do not get to choose where my 401k is hosted in USA, your company chooses the vendor - this may differ up there in Soviet Canuckistan. :) Some companies shut down their investment division (USAA -> Victory Capital recently), so what was a no-fee no-load option at that company now costs $$ at another company - for example, I think Vanguard funds are free to trade on Vanguard but really expensive on Schwab, so if you held VFINX and rolled it in-kind over to Schwab it would now cost you more than if you unloaded VFINX and replaced it with SWPPX. Some funds are unique to that company and it's hard to find replacements (USAA's USNQX e.g.) so you might choose to eat cross-vendor fees because it's performance is just that good. Really depends on all the "what's free to trade at this vendor" - it's not always an even playing field, each vendor wants to push their in-house flavour of the index. Different category but related: company stock - for whatever reason, that's almost always been E-Trade (now Morgan Stanley!) in tech; both Google and Red Hat offered friends-of-company shares exclusively though E-Trade, my company does it, etc. - so now I have yet another vendor to deal with and it tends to grow arms and legs unless you keep pulling money out and pushing it over to your preferred vendors. Target funds are actively managed assets, they have higher fees and constant re-balancing being done by humans to meet "the target" - they're still kind of new (many created mid-2010s I think) so we only have so much data, but generally they're 4-star and lag (returns) behind any common 5-star index fund. (compare 2 from the same vendor, for example SWPPX vs SWYGX but almost all vendors have them now, this is not investing advice).
- refurb 6y ago
  You may want to look up the "Lost Decade" of the S&P 500 from 2000 to 2009. Why is that 9 year period special? You're just picking two bottoms of the market. 9/2002 to 2/2009 is -7% even with dividends. But if I push it out only 1 year (9/2002 to 2/2010) the return is +25%.
  - throw0101a 6y ago
    > But if I push it out only 1 year (9/2002 to 2/2010) the return is +25%. Which is kind of my point: many people are looking at the last ten years and seeing that equities/S&P 500 can do no wrong. But things were painful in the previous decade. But then pretty good again in the 1990s. See Index Fund Advisors' recent ~15 minute video "50 Year Market Review": * https://www.youtube.com/watch?v=M82Veytnsfw https://www.youtube.com/watch?v=M82Veytnsfw A lot of people are dumping money into $SPY and and $QQQ, and that's certainly worked recently, but may not work all the time, especially if you have another few decades to go until retirement (which is many/most people's primary long-term financial goal is).
    - gravitas 6y ago
      > Which is kind of my point: many people are looking at the last ten years and seeing that equities/S&P 500 can do no wrong. But things were painful in the previous decade. I will posit that 40 years is probably a bulk of the average person's investing years (25-65), and I may be being generous in "average" based on how often I read people do not invest (if true). 40 year (1980-2020) chart for VFINX (Vanguard S&P 500) - a share was $20 in 1980 (~$63 adjusted for inflation 2020); trades at $320 today. Using a random historical rate of return calculator[1], $10k one time invested in an S&P 500 index in 1980 is just shy of $238k at the end of 2019 at 8.5% return. [1] https://financial-calculators.com/historical-investment-calculator https://financial-calculators.com/historical-investment-calc...
      - throw0101a 6y ago
        > I will posit that 40 years is probably a bulk of the average person's investing years (25-65) Except that at 65 (the 'traditional' retirement age) one generally doesn't just liquidate all one's equity holdings. Best practices is generally to increase bond holdings as one ages, but going all-bonds/fixed income is rarely done as I understand things. Unless you've built up enough cash to simply buy an annuity so that it's now the insurance company's problem, or one has a pension, some form of equity returns are needed. At 65, most people's average life expectancy can be another twenty years in most developed countries (with a 50% chance of making it into one's 90s), so from start (ending school) to finish (death), that could be 60 years. And that doesn't include a partner that may live beyond you if they're of a younger age, and so would also use whatever resources are left for their own needs.
wgerard 6y ago
> My personal performance of investing in all three categories (total market index, S&P 500 index, NASDAQ-100 index) matches every chart you can find online over last 5 years; the total index funds are carrying the baggage of all that "not S&P" weight and are worse returns than the 500, with the 100 achieving almost twice the performance as the 500 (near 24% returns over 5y). I think you're perhaps inadvertently proving my point: If S&P funds are performing significantly better than total market funds, either there's something particularly special about S&P companies (very valid reasoning, it's not a random assortment) or S&P companies are overvalued simply because they're part of the S&P and investors value that more than perhaps the fundamentals would support (not a completely asinine thought).
- gravitas 6y ago
  > I think you're perhaps inadvertently proving my point Yes sorry that was the intention - the "market mechanics" which I observe as a passive investor support your theory, as well as my own choices in how I move that money. My goal is overall return on investment as opposed to say socially-conscious or other types of investing choices (although I have dabbled in some of the socially conscious funds, good for the soul but not really the pocketbook); the data shows that using the index funds over total market funds is a better financial choice for a guy like me who just wants to "sort of care from time to time" over the long term.
  - wgerard 6y ago
    Ahh, gotcha. Cheers then!
atombender 6y ago
Target date retirement funds aren't new? And they include bonds, so of course you're not going to beat the market with them. Most target date funds (Vanguard, Fidelity's Zero funds, Schwab's Target Date Index) use passive index funds and are exceedingly cheap and have excellent performance. Schwab's have a net ER of just 0.08%, the lowest in the industry, beating Vanguard by 7 basis points. There are some ridiculously complicated and overpriced TDFs (T. Rowe Price comes to mind) out there, of course. Knowing what you buy is important. The reason the NASDAQ 100 is beating the S&P is because of FAANG stocks, and the trend has mostly been the last decade or so. Meanwhile, the total market index is pretty much on par with the S&P since 1992 [1]. [1] https://www.portfoliovisualizer.com/backtest-portfolio?s=y&timePeriod=4&startYear=1985&firstMonth=1&endYear=2020&lastMonth=12&calendarAligned=true&includeYTD=false&initialAmount=10000&annualOperation=0&annualAdjustment=0&inflationAdjusted=true&annualPercentage=0.0&frequency=4&rebalanceType=1&absoluteDeviation=5.0&relativeDeviation=25.0&showYield=false&reinvestDividends=true&benchmark=VFINX&portfolioNames=true&portfolioName1=VTI&portfolioName2=QQQ&portfolioName3=Portfolio+3&symbol1=VTSMX&allocation1_1=100&symbol2=QQQ&allocation2_2=100 https://www.portfoliovisualizer.com/backtest-portfolio?s=y&t...
- gravitas 6y ago
  > Target date retirement funds aren't new? Yeah I don't pretend to be a pro to know what constitutes "new", other than for example "many 2020 target date funds were created 2005-2008 at the major vendors" - is that "new"? Is 15 years "tenured"? shrug Compared to an index fund going back to 1980, I tend to think that's "new" in the long term skyline of mutual funds.
  - atombender 6y ago
    Target date funds have existed since the 1990s. The age of current TDFs is skewed by the fact that they are created with a specific time horizon; Vanguard's 2065 fund was only created in 2017, for example, for obvious reasons. TDFs are just funds-of-funds, so you only need to know the characteristics of the underlying funds to understand their makeup and performance. Vanguard's TDFs, for example, are composed of some of the most highly respected index mutual funds in the business. There are other arguments for not holding target date funds, but generally speaking I think they're the best investment that your average retail investor can make.

throw0101a 6y ago

> matches every chart you can find online over last 5 years; the total index funds are carrying the baggage of all that "not S&P" weight and are worse returns than the 500, with the 100 achieving almost twice the performance as the 500 (near 24% returns over 5y). Looking at only the last five years is myopic and not wise. You may want to look up the "Lost Decade" of the S&P 500 from 2000 to 2009. See also this recent <15 minute video from Index Fund Advisors entitled "50 Year Market Review" for a longer perspective: * https://www.youtube.com/watch?v=M82Veytnsfw https://www.youtube.com/watch?v=M82Veytnsfw

gravitas 6y ago
> Looking at only the last five years is myopic and not wise. You may want to look up the "Lost Decade" of the S&P 500 from 2000 to 2009. I'm 50+, my money has been moving around these funds since the late 90s. :) I lived as a tech worker through all the 2000-2010 had to offer us, everyone took a beating not just index funds. Besides that point, holding a fund 5 years is normal - it's not like you have to keep a fund longer than 5, make your money and let it go. Roll it over into something else - passive investing does not mean ignoring your investing, you must still tend to your crops from time to time.
- throw0101a 6y ago
  > I lived as a tech worker through all the 2000-2010 had to offer us, everyone took a beating not just index funds. Seems to have been not too bad if one had some bonds and rebalanced: * https://www.forbes.com/sites/investor/2010/12/17/the-lost-decade-was-a-golden-age-if-you-rebalanced/ https://www.forbes.com/sites/investor/2010/12/17/the-lost-de... > Besides that point, holding a fund 5 years is normal - it's not like you have to keep a fund longer than 5, make your money and let it go. Why would one jump from one fund to another? > Roll it over into something else - passive investing does not mean ignoring your investing, you must still tend to your crops from time to time. Tend in what way? I can think of perhaps rebalancing so if you're doing a multi-fund setup with particularly desired asset allocation (bonds, equities: US, world, EM). But if you're using (say) a target date fund, what's there to do? In Canada we have "all-in-one" ETFs that have particular asset allocations which do rebalancing internally: * https://milliondollarjourney.com/all-in-one-etfs-battle-vanguard-vs-ishares-vs-bmo.htm https://milliondollarjourney.com/all-in-one-etfs-battle-vang... * https://www.savvynewcanadians.com/all-in-one-etf-portfolios-for-investors-canada/ https://www.savvynewcanadians.com/all-in-one-etf-portfolios-... Perhaps as one moves closer to retirement then change the bond component, but what is there to otherwise tend?
  - gravitas 6y ago
    > Tend in what way? I can think of perhaps rebalancing so if you're doing a multi-fund setup with particularly desired asset allocation (bonds, equities: US, world, EM). But if you're using (say) a target date fund, what's there to do? (General response, just quoting this part) - life is messy, things change around you. My 401k for example (throughout different jobs) bounces around, I've had Schwab, WellsFargo, Vanguard (even some no-brand way back when) who each offer their own strategies; some having severely limited options, some having open playing fields - in 2000 WellsFargo may have offered 1 of 3 choices IIRC. In 2020, they have 30 choices (many are target date funds) - but Schwab is open-ended, do what you want; when your money rolls over from one to the other, it's usually a liquidation and cash transfer (although I've used in-kind for a Roth IRA, worked OK but not perfect - lost some cost basis data, had to repair). I do not get to choose where my 401k is hosted in USA, your company chooses the vendor - this may differ up there in Soviet Canuckistan. :) Some companies shut down their investment division (USAA -> Victory Capital recently), so what was a no-fee no-load option at that company now costs $$ at another company - for example, I think Vanguard funds are free to trade on Vanguard but really expensive on Schwab, so if you held VFINX and rolled it in-kind over to Schwab it would now cost you more than if you unloaded VFINX and replaced it with SWPPX. Some funds are unique to that company and it's hard to find replacements (USAA's USNQX e.g.) so you might choose to eat cross-vendor fees because it's performance is just that good. Really depends on all the "what's free to trade at this vendor" - it's not always an even playing field, each vendor wants to push their in-house flavour of the index. Different category but related: company stock - for whatever reason, that's almost always been E-Trade (now Morgan Stanley!) in tech; both Google and Red Hat offered friends-of-company shares exclusively though E-Trade, my company does it, etc. - so now I have yet another vendor to deal with and it tends to grow arms and legs unless you keep pulling money out and pushing it over to your preferred vendors. Target funds are actively managed assets, they have higher fees and constant re-balancing being done by humans to meet "the target" - they're still kind of new (many created mid-2010s I think) so we only have so much data, but generally they're 4-star and lag (returns) behind any common 5-star index fund. (compare 2 from the same vendor, for example SWPPX vs SWYGX but almost all vendors have them now, this is not investing advice).
refurb 6y ago
You may want to look up the "Lost Decade" of the S&P 500 from 2000 to 2009. Why is that 9 year period special? You're just picking two bottoms of the market. 9/2002 to 2/2009 is -7% even with dividends. But if I push it out only 1 year (9/2002 to 2/2010) the return is +25%.
- throw0101a 6y ago
  > But if I push it out only 1 year (9/2002 to 2/2010) the return is +25%. Which is kind of my point: many people are looking at the last ten years and seeing that equities/S&P 500 can do no wrong. But things were painful in the previous decade. But then pretty good again in the 1990s. See Index Fund Advisors' recent ~15 minute video "50 Year Market Review": * https://www.youtube.com/watch?v=M82Veytnsfw https://www.youtube.com/watch?v=M82Veytnsfw A lot of people are dumping money into $SPY and and $QQQ, and that's certainly worked recently, but may not work all the time, especially if you have another few decades to go until retirement (which is many/most people's primary long-term financial goal is).
  - gravitas 6y ago
    > Which is kind of my point: many people are looking at the last ten years and seeing that equities/S&P 500 can do no wrong. But things were painful in the previous decade. I will posit that 40 years is probably a bulk of the average person's investing years (25-65), and I may be being generous in "average" based on how often I read people do not invest (if true). 40 year (1980-2020) chart for VFINX (Vanguard S&P 500) - a share was $20 in 1980 (~$63 adjusted for inflation 2020); trades at $320 today. Using a random historical rate of return calculator[1], $10k one time invested in an S&P 500 index in 1980 is just shy of $238k at the end of 2019 at 8.5% return. [1] https://financial-calculators.com/historical-investment-calculator https://financial-calculators.com/historical-investment-calc...
    - throw0101a 6y ago
      > I will posit that 40 years is probably a bulk of the average person's investing years (25-65) Except that at 65 (the 'traditional' retirement age) one generally doesn't just liquidate all one's equity holdings. Best practices is generally to increase bond holdings as one ages, but going all-bonds/fixed income is rarely done as I understand things. Unless you've built up enough cash to simply buy an annuity so that it's now the insurance company's problem, or one has a pension, some form of equity returns are needed. At 65, most people's average life expectancy can be another twenty years in most developed countries (with a 50% chance of making it into one's 90s), so from start (ending school) to finish (death), that could be 60 years. And that doesn't include a partner that may live beyond you if they're of a younger age, and so would also use whatever resources are left for their own needs.

wgerard 6y ago

> My personal performance of investing in all three categories (total market index, S&P 500 index, NASDAQ-100 index) matches every chart you can find online over last 5 years; the total index funds are carrying the baggage of all that "not S&P" weight and are worse returns than the 500, with the 100 achieving almost twice the performance as the 500 (near 24% returns over 5y). I think you're perhaps inadvertently proving my point: If S&P funds are performing significantly better than total market funds, either there's something particularly special about S&P companies (very valid reasoning, it's not a random assortment) or S&P companies are overvalued simply because they're part of the S&P and investors value that more than perhaps the fundamentals would support (not a completely asinine thought).

gravitas 6y ago
> I think you're perhaps inadvertently proving my point Yes sorry that was the intention - the "market mechanics" which I observe as a passive investor support your theory, as well as my own choices in how I move that money. My goal is overall return on investment as opposed to say socially-conscious or other types of investing choices (although I have dabbled in some of the socially conscious funds, good for the soul but not really the pocketbook); the data shows that using the index funds over total market funds is a better financial choice for a guy like me who just wants to "sort of care from time to time" over the long term.
- wgerard 6y ago
  Ahh, gotcha. Cheers then!

atombender 6y ago

Target date retirement funds aren't new? And they include bonds, so of course you're not going to beat the market with them. Most target date funds (Vanguard, Fidelity's Zero funds, Schwab's Target Date Index) use passive index funds and are exceedingly cheap and have excellent performance. Schwab's have a net ER of just 0.08%, the lowest in the industry, beating Vanguard by 7 basis points. There are some ridiculously complicated and overpriced TDFs (T. Rowe Price comes to mind) out there, of course. Knowing what you buy is important. The reason the NASDAQ 100 is beating the S&P is because of FAANG stocks, and the trend has mostly been the last decade or so. Meanwhile, the total market index is pretty much on par with the S&P since 1992 [1]. [1] https://www.portfoliovisualizer.com/backtest-portfolio?s=y&timePeriod=4&startYear=1985&firstMonth=1&endYear=2020&lastMonth=12&calendarAligned=true&includeYTD=false&initialAmount=10000&annualOperation=0&annualAdjustment=0&inflationAdjusted=true&annualPercentage=0.0&frequency=4&rebalanceType=1&absoluteDeviation=5.0&relativeDeviation=25.0&showYield=false&reinvestDividends=true&benchmark=VFINX&portfolioNames=true&portfolioName1=VTI&portfolioName2=QQQ&portfolioName3=Portfolio+3&symbol1=VTSMX&allocation1_1=100&symbol2=QQQ&allocation2_2=100 https://www.portfoliovisualizer.com/backtest-portfolio?s=y&t...

gravitas 6y ago
> Target date retirement funds aren't new? Yeah I don't pretend to be a pro to know what constitutes "new", other than for example "many 2020 target date funds were created 2005-2008 at the major vendors" - is that "new"? Is 15 years "tenured"? shrug Compared to an index fund going back to 1980, I tend to think that's "new" in the long term skyline of mutual funds.
- atombender 6y ago
  Target date funds have existed since the 1990s. The age of current TDFs is skewed by the fact that they are created with a specific time horizon; Vanguard's 2065 fund was only created in 2017, for example, for obvious reasons. TDFs are just funds-of-funds, so you only need to know the characteristics of the underlying funds to understand their makeup and performance. Vanguard's TDFs, for example, are composed of some of the most highly respected index mutual funds in the business. There are other arguments for not holding target date funds, but generally speaking I think they're the best investment that your average retail investor can make.