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I disagree! Good active management is proven to beat the indexes over time. Just look at what Capital Research and Management (American Funds) has done over their long history.

Example: a $10,000 investment in their oldest fund, Investment Company of America, aka, ICA, at it's inception in 1934, would have grown to over $123,437,514 by the end of 2016. (I haven't seen the 2017 update yet). That's an average annual rate of return of 12.0%.

OTOH, over the same time, a $10,000 investment into the S&P 500 would have grown to 'just' $49,625,707, an average rate of return of 10.8%.

Of course. you can't actually buy the S&P 500! It's simply a mathematical calculation with NO fees taken into consideration. You can only buy an S&P 500 index fund, which does charge fees to buy, sell and manage the fund, not to mention marketing costs, reporting, and custodial charges. Those fees are relatively low, but low or not, they exist. If you assume those fees to be just 1/4 of 1%, the account grows to $45,596,839. That's Four MILLION dollars less than the index itself.

Good active management makes a difference.

Besides, the only funds which are guaranteed to NEVER beat their indexes are INDEX FUNDS!

For starters, his name is Bogle, not Vogel, and his fund family is Vanguard, not Van Guard.

The Fund return I referenced above is NET of ALL expenses. So what, exactly, is your point?

Any other wonderful investment insights you'd like to share?

"This market" is irrelevant, esp. given all of the countless claims in the past that "this market" was going to be a killer.

The reality is that 'this market' is irrelevant given the past, when the market has survived World Wars, regional wars, hyper-inflation, the assassination of a President, a Great Depression, Jimmy Carter, Barack Obama, countless recessions and a never-ending supply of predictions that, "The world is going to end and you are going to lose all of your money."

It's ALL irrelevant in the long term and it's all Bu!!$h!t as well.

I didn't factor in fees over those periods, but the differences in return percentages were more than enough to cover the differences in costs.

IMO, index funds are cheap and a good way to diversify, but you can certainly do better with a little effort and research with actively managed funds.

Matt

"It used to all be irrelevant Kyle, but now that we are at war with the demonic, trillionaire, pedophile, reptilian, shapeshifting illuminati, all bets are off. "

But you forgot to mention the Rothchilds!

LOL

Your funds' published performances INCLUDE all fees and expenses, as do the results of the comparable index funds. So please 'splain how you could have possibly not factored in all fees.

The only question that remains, therfore, is whether or not you're measuring your funds against their appropriate indecies on a risk-sdjusted basis.

"There are none so blind as those who will not see."

I didn't realize the published returns include costs. Thanks for the clarification. That makes me even more happy with my investments. ;-)

Index funds definitely out-perform many offerings, but not the best performing actively managed funds.

Matt

I find your article a little disingenuous. Many mutual funds are tailored to reduce volatility for older investors who are more concerned about principle preservation than growth. So, it's no surprise they underperform index funds.

I'd also like to see these same comparisons for an extended bear market. Something tells me the results may be different.

Lastly, if everyone invested in index funds for the long term, the indices would stagnate as would their investments, since its the actively traded shares that move the markets.

Matt

I'd argue that passive investment increases the risk of a bubble, since stocks are indexed by market capitalization. Indexed funds push money into the largest companies whether they are performing well or not. Active funds push money into the companies whose fundamentals are strongest regardless of size.

Matt

Decent returns. Average expenses. Slightly below average risk. 1, 3, 5, and 10 year returns aren't great, but neither is the risk.

Matt

I also liked your earlier comment about the only funds that are guaranteed NOT to outperform the their index is a indexed fund. I will get some mileage out of that one.

Matt

"I will get some mileage out of that one."

You might get some push-back on that from someone who is woefully uniformed.

Why? Because there are some so-called index funds which have outperformed their indexes at times. They do that by using leverage, which means they are not index funds at that point and that they are also taking more risk.

Understood. It's games like that which make investing such a mystery for so many folks. I guess it also provides job security for people in your profession, as well.

Matt

Some of what I know came from book learning/traditional academic studies.

But most of what I know, and almost ALL of the best stuff I know, has come from almost forty-three years of on-the-ground experience. In both cases, I've been able to distinguish the noise and the garbage, which is considerable, from the good, useful, and valuable stuff which can benefit my clients.

I'd think KPC would say the same thing.

I'm not at all a fan of target date funds. Most, although not all, are invested based on your supposed retirement age or something slightly longer, while in reality, if you're married, either you and/or your spouse is likely to live well into your eighties.

Well said.

Plus, they allowed their emotions to override their intellect, causing them to 'Buy High, Sell Low' over and over and over again.

The whole "glide-path" thing is an interesting concept.....

Matt

The Journal of Financial Planning has had a lot of articles on the 'glide path' concept in the past few years.

I don't completely buy it.

Yeah, I've been reading up on it. It seems like a formula that doesn't necessarily fit everyone's situation. I've looked over the Freedom Funds assets allocations. I can do the same allocation adjustments myself, as necessary, whenever I want.

Besides, those Freedom Funds haven't exactly been stellar performers over the last decade.

Matt

NOTHING you read is right for everyone or even anyone.

Everyone out there has different situations, needs, goals and objectives.

The 'One size fits all' approach is dangerous, inappropiate and wrong!

My point exactly!

I understand.

For much of my career, my company had a very generous match to our 401(k) plan.

That match was entirely in company stock. You had to hold it for a year, but as soon as that year was up, I'd sell it and diversify it accordingly. I did that not because I was concerned about the stock, but rather because my entire career was already 'invested' in what my company did and I didn't want to be heavily over-weighted into one position.

More 'advice' from someone who thinks the best place to get advice is from a source he knows nothing about from people who nothing about you.

But see that is the nub, getting competent advice from the right financial planner. I'm sure KC and Nvgup are in the top of their profession but I've seen plenty of financial planners that aren't. When clients or friends had asked me in the past I gave them the same advice since I'm not qualified to offer financial advice.

I agree completely.

Part of the problem is that anyone can call themselves a financial planner, financial advisor, etc. Only a person who's undergone extensive training in all aspects of wealth management and then complete fairly comprehensive Continuing Education requirements, to include ethics training can call themselves a Certified Financial Planner, or CFP for short.

That's no guarantee of competence or excellence, but it's better than the alternative and a good place to start. There are very competent folks in the business who do not have a CFP for various reasons, of course.

In addition, before engaging anyone, a person should check out the planner on FINRA's Broker Check. FINRA is our regulatory agency.

When you go to Broker Check, you will see not only the person's history and educational levels, but more inmportantly, you can see any disciplinary actions or sanctions they've had. To me, that's a BIG deal. The last thing you want is an advisor with a shady history. Unfortunatley, issues that do not involve formal complaints to a state, the Feds or FINRA are not included in Broker Check as those items are often dealt with internally.

I've had two such cases where a client engaged me to help clean up the mess his previous Rep' had created. With my help, they both ended up getting cash settlements of over $200,000. Neither of those cases show at Broker Check because the Rep's firm dealt directly with the client and thus the regulatory agencies were never aware of the issues.

As Kevin said, it's less about what you invest in and more about just investing, at an early age, and leaving it invested. Compounding interest is truly the 8th wonder of the world.

Matt

My philosophy is nobody will ever care more about my money than me. Granted, that can lead to bad decisions based on emotion for some, especially when you first start out, but I think that subsides with time and experience, at least it has for me.

I'm not sure "minor freak out" is accurate. Yes, I was concerned with how suddenly and swiftly the markets corrected. But, I also avoided half of the drop with a large portion or our portfolio by being able to quickly move it to a less volatile investment. The markets have been basically flat since then, so I haven't missed any significant returns with that move. And, I can always easily move it back when I see things stabilize a bit.

It's similar to tuning my bow. I'd never let anyone tune my bow for me. For one, there's no perfect universal tune, a bow needs to be tuned to the shooter. And two, I don't know of many guys who know how to tune a compound bow with a bare shaft out to 50 yards.

Matt

"The SP500 is an amorphous blob of ~500 companies that have been chosen specifically because of how easy it is for the most people to invest in them. Intuitively it makes sense that this would include the ~500 largest companies, and that these ~500 companies would be a good representation of the economy as a whole, but careful thought reveals some problems. For “alternative” funds such as our own, these problems represent opportunity.

The SP500 is “market cap weighted,” and “float adjusted.” In layman’s terms, market cap weighted means that if there were two companies that were completely identical except that one was more expensive than the other, the SP500 would own MORE of the expensive company. If you are keeping score at home, this is equivalent to “buying high.”

Float adjusted means that if there were two companies that were completely identical except that at one company, the management team owned a lot of shares (presumably because they think the stock will go up), the SP500 would own LESS of this company. Again, for those keeping score at home, this means that the more confidence the management team has, the less stock the SP500 owns.

These two attributes make sense for “THE most investors,” but they completely fail the common sense test. Would you rather own more of the expensive stocks? Would you rather own less of the stocks that management is most confident in?

Our fund is built on the belief that it is possible to carefully select approximately 15 companies that are more likely to provide satisfactory returns than the SP500 over longer periods of time. At present, our long term competition (the SP500) is trading at a trailing P/E of ~25x, with margins above their “normal” level, and its growth will ultimately be linked to inflation. From this point, even Jack Bogle, the founder of Vanguard and the world’s leading proponent of index funds, has opined that SP500 returns over the next decade are likely to be 4% per year. This might be the best option for THE most people, but for those with the fortitude to think and act differently than “most people,” I think there is a better alternative."