4 ms·

I am an adherent to the Efficient Market Hypothesis (http://en.wikipedia.org/wiki/Market_efficiency http://en.wikipedia.org/wiki/Market_efficiency) and thus try

by Femur 18y ago

I am an adherent to the Efficient Market Hypothesis (http://en.wikipedia.org/wiki/Market_efficiency http://en.wikipedia.org/wiki/Market_efficiency) and thus try to capture the market (through index funds) and minimize cost. Ideally, the best way to do this is own multiple non-correlated indexes (Example: Gold and the S&P500 are negatively correlated). I own my indexes through Vanguard. A well diversified portfolio that owns stocks (of all capitalization both foreign and domestic), bonds (treasuries and corporate foreign and domestic), real estate, commodities (Gold, Silver etc) and Cash (multiple currencies) will generally provide positive stable returns continually. In my opinion the big "to-do" with most peoples 401ks is that they are VERY poorly diversified and way to heavy in stocks.

Femur 18y ago
I forgot to mention the benefits of Indexing from a personal perspective. It is: -Cheap (low cost) -Easy (Set it and forget it with occasional rebalancing) -Safe (As long as you are properly diversified) -Low Stress (Some portions may have wild swings, but the negatively correlated holdings swing the other way) -Good returns (Your investments will never perform below-average)
adsyoung 18y ago
Do you believe it to be truly efficient or just the most effective hypothesis? For example perhaps where it is inefficient this is indistinguishable and highly random therefore not terribly useful?
- Femur 18y ago
  I do not believe it to be truly efficient as that would require perfect information for all parties that participate in the market. (discussion of that topic is here: http://en.wikipedia.org/wiki/Perfect_information http://en.wikipedia.org/wiki/Perfect_information) I do believe that it is efficient enough that the model works.
  - adsyoung 18y ago
    Is there anyone who doesn't believe that it works though? i.e. It won't lead to a reasonable positive return? Believing that it works means simply accepting the average return of the market through index funds as you said, which sounds reasonable to me, but it is admitting defeat that you can't beat the market in the long run. Seems to me everyone would agree it works in general and the trouble starts when you try and do better than it. Is your reason for not looking for inefficiencies to exploit and do better the fact that it takes more time than you have to devote to it, don't believe its possible in the long run (i.e. largely luck), you require some special insight other people don't have, other?

by Femur 18y ago

Femur 18y ago

I forgot to mention the benefits of Indexing from a personal perspective. It is: -Cheap (low cost) -Easy (Set it and forget it with occasional rebalancing) -Safe (As long as you are properly diversified) -Low Stress (Some portions may have wild swings, but the negatively correlated holdings swing the other way) -Good returns (Your investments will never perform below-average)

adsyoung 18y ago

Do you believe it to be truly efficient or just the most effective hypothesis? For example perhaps where it is inefficient this is indistinguishable and highly random therefore not terribly useful?

Femur 18y ago
I do not believe it to be truly efficient as that would require perfect information for all parties that participate in the market. (discussion of that topic is here: http://en.wikipedia.org/wiki/Perfect_information http://en.wikipedia.org/wiki/Perfect_information) I do believe that it is efficient enough that the model works.
- adsyoung 18y ago
  Is there anyone who doesn't believe that it works though? i.e. It won't lead to a reasonable positive return? Believing that it works means simply accepting the average return of the market through index funds as you said, which sounds reasonable to me, but it is admitting defeat that you can't beat the market in the long run. Seems to me everyone would agree it works in general and the trouble starts when you try and do better than it. Is your reason for not looking for inefficiencies to exploit and do better the fact that it takes more time than you have to devote to it, don't believe its possible in the long run (i.e. largely luck), you require some special insight other people don't have, other?