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> I am a long term investor, so I am not terribly concerned with management fees. This is what you should be most concerned with as a long-term investor. Inve

by saryant 12y ago

> I am a long term investor, so I am not terribly concerned with management fees. This is what you should be most concerned with as a long-term investor. Investment fees can easily chew away at a significant portion of your gains over the long-term. The difference between a mutual fund with an expense ratio of 1% and a fund that costs 0.05% is $6661 over 20 years on a $10,000 investment (assuming both return 7% annually). In the end, it's the difference between $31,650 and $38,311. Obviously the difference grows with the size of your investment.

VLM 12y ago
"(assuming both return 7% annually)" LOL the median never gets returns above the median, which sounds like a tautology and nobody gets the same return every year except for long term .gov bonds and those aren't indexed for (real) inflation anyway. The point is you can't get blood from a stone and the median of active mgmt will always return somewhat less than the median of passive mgmt (aka the permanent portfolio theory or related funds). After all that active manager needs to adsorb income to eat whereas the passive manager might merely be a line of source code. However, what active management can provide is a smaller std deviation of returns, at least on average. So in the real world you won't get 7% every year unless you somehow obtained a .gov bond at that yield (good luck) or something like that. But it'll average 7%. And the std deviation of that will more or less decrease with increasing activity of mgmt aka increasing costs. There are guys who just waste money or go in parasite mode and there are cheap guys who do a great job, I'm talking about on average. So you're right for the wrong reasons, in that when you're young you want the highest return for compounding reasons so you get the most passive guy possible (possibly just a permanent portfolio psuedoindex fund) and don't sweat fluctuations, but half a decade outta retirement you want the most expensive guy out there so maybe you only get around 6% but its almost certain it'll be between 5.5 and 6.5 not all over the map. There's more to think about like diversification and selecting less risky (aka lower yield) as you get older etc, but this is a good gross summary.
- saryant 12y ago
  Rather than moving towards active management as you become more conservative, why not just rebalance towards safer investments like bonds, reducing your equity holdings without increasing costs?
  - VLM 12y ago
    Rebalancing your portfolio is active management of the portfolio. Aside from that... With bonds at this time you can either get a return on capital below the real inflation rate (aka you're better off with metals which track inflation better than bonds or just spending it now to get more than you'll be able to get later) or you get to worry about return of capital with super risky investments. From a harm minimization standpoint you'll fall behind slower with bonds than just putting it in a savings account, so from that point of view its a valid strategy. Right now we're near a peak, nobodys buying equities but the retail guys who you can always count on to buy high and sell low, so I'm not talking about today but over a longer term. It probably wouldn't be wise to buy in near a market peak. An interesting observational definition of the start of a recession is there's no really good place to park your money. That's now.

by saryant 12y ago

VLM 12y ago

"(assuming both return 7% annually)" LOL the median never gets returns above the median, which sounds like a tautology and nobody gets the same return every year except for long term .gov bonds and those aren't indexed for (real) inflation anyway. The point is you can't get blood from a stone and the median of active mgmt will always return somewhat less than the median of passive mgmt (aka the permanent portfolio theory or related funds). After all that active manager needs to adsorb income to eat whereas the passive manager might merely be a line of source code. However, what active management can provide is a smaller std deviation of returns, at least on average. So in the real world you won't get 7% every year unless you somehow obtained a .gov bond at that yield (good luck) or something like that. But it'll average 7%. And the std deviation of that will more or less decrease with increasing activity of mgmt aka increasing costs. There are guys who just waste money or go in parasite mode and there are cheap guys who do a great job, I'm talking about on average. So you're right for the wrong reasons, in that when you're young you want the highest return for compounding reasons so you get the most passive guy possible (possibly just a permanent portfolio psuedoindex fund) and don't sweat fluctuations, but half a decade outta retirement you want the most expensive guy out there so maybe you only get around 6% but its almost certain it'll be between 5.5 and 6.5 not all over the map. There's more to think about like diversification and selecting less risky (aka lower yield) as you get older etc, but this is a good gross summary.

saryant 12y ago
Rather than moving towards active management as you become more conservative, why not just rebalance towards safer investments like bonds, reducing your equity holdings without increasing costs?
- VLM 12y ago
  Rebalancing your portfolio is active management of the portfolio. Aside from that... With bonds at this time you can either get a return on capital below the real inflation rate (aka you're better off with metals which track inflation better than bonds or just spending it now to get more than you'll be able to get later) or you get to worry about return of capital with super risky investments. From a harm minimization standpoint you'll fall behind slower with bonds than just putting it in a savings account, so from that point of view its a valid strategy. Right now we're near a peak, nobodys buying equities but the retail guys who you can always count on to buy high and sell low, so I'm not talking about today but over a longer term. It probably wouldn't be wise to buy in near a market peak. An interesting observational definition of the start of a recession is there's no really good place to park your money. That's now.