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Why not just buy the index(s)?
Posted on 11/28/23 at 9:22 am
Posted on 11/28/23 at 9:22 am
This concept puts chills down the spine of the active money managers but I’d love to hear the arguments against it.
I could spend hours studying individual companies for winners but if the market isn’t onboard, the stock will languish in insecurity. I’ve held dozens of great companies with stocks that putter along like old ladies crossing a busy intersection.
As I’ve aged, it’s more and more clear to me that just buying the SPY, QQQ, RUT brings better returns and with much less work.
Can anyone make a case for active management?
I could spend hours studying individual companies for winners but if the market isn’t onboard, the stock will languish in insecurity. I’ve held dozens of great companies with stocks that putter along like old ladies crossing a busy intersection.
As I’ve aged, it’s more and more clear to me that just buying the SPY, QQQ, RUT brings better returns and with much less work.
Can anyone make a case for active management?
This post was edited on 11/28/23 at 9:23 am
11
Posted on 11/28/23 at 9:28 am to SlidellCajun
It makes you feel like you’re doing (paying for) something.
Sometimes you come out ahead with active management. Most times you don’t.
Sometimes you come out ahead with active management. Most times you don’t.
Posted on 11/28/23 at 9:36 am to SlidellCajun
Well it’s true that over the last 20+ years or so index investing has been the way to go. Would that still be true if there was a big downturn that lasted a while? I don’t know.
Posted on 11/28/23 at 9:43 am to SlidellCajun
I have a Schwab (formerly TD Ameritrade) brokerage account I add to every few months when I have a few thousand built up. I bought a shitload VOO and VUG in March of 2020 and have been adding to it a few times a year and it has done well.
I've taken a few flyers here and there, but most have fallen flat. I can always count on those 2 over the long term.
I've taken a few flyers here and there, but most have fallen flat. I can always count on those 2 over the long term.
Posted on 11/28/23 at 9:51 am to SlidellCajun
quote:
This concept puts chills down the spine of the active money managers but I’d love to hear the arguments against it.
Because it would put them out of a job. There are a few CFP or related posters here that may chime in, but the arguments for active management are fickle and I'm most/all of them are underperforming the index.
This post was edited on 11/28/23 at 9:55 am
Posted on 11/28/23 at 9:52 am to SlidellCajun
I think if you had an absurd amount of money and you wanted a smart balance that minimized tax burden while creating a nice spread between relatively short term stable gains and a long term growth strategy and you were busy running a business or being heavily active in a career, active money management makes sense. I have a couple friends who do quite well and have large families and it's simpler for them to just have someone else do it all so they can focus on business and family.
For the other 90% of us, the broader market is probably the better option.
For the other 90% of us, the broader market is probably the better option.
Posted on 11/28/23 at 10:07 am to SlidellCajun
My FIL is rich and an investment guru. He does indexes but also has a long history of success with a diverse portfolio he actively manages. He wouldn’t have the net worth he has just using index funds. He’d be secure and comfortable but not at his current net worth.
Well, I should use past tense since he has dementia now.
For me, I’ll only use indexes. The investment market doesn’t really interest me, and I don’t have the mathematical foresight to calculate risks. I’ve enjoyed my Roth steadily increasing even with the issues during the pandemic. I’m still way ahead of what I could have ever imagined when I was younger.
Well, I should use past tense since he has dementia now.
For me, I’ll only use indexes. The investment market doesn’t really interest me, and I don’t have the mathematical foresight to calculate risks. I’ve enjoyed my Roth steadily increasing even with the issues during the pandemic. I’m still way ahead of what I could have ever imagined when I was younger.
Posted on 11/28/23 at 10:36 am to SlidellCajun
I don’t know the right answer but I felt like this argument may be a reason to diversify between indices and stocks. All the 401k and after tax money I deal with myself is in index and mutual funds. I pay a fee for a robo service that manages some other after tax and IRA $ in a large variety of stocks.
This post was edited on 11/28/23 at 10:36 am
Posted on 11/28/23 at 11:22 am to Tifway419
Let me throw a wrinkle
with 90% of your money you buy the index and with 10% of your money you buy the one stock that’s out performed that index for the past 12 months but is also included within that index
I’d bet that it outperforms the index
with 90% of your money you buy the index and with 10% of your money you buy the one stock that’s out performed that index for the past 12 months but is also included within that index
I’d bet that it outperforms the index
Posted on 11/28/23 at 11:43 am to SlidellCajun
The biggest arguments? Ever heard of Socialism and Fascism?
Blackrock has, plus all of those so called "activist investors".
It's simple. The same people who get banks and insurance companies to drop services for conservative orgs they don't like, like the NRA for instance, are applying a social credit score and ESG score and any of a thousand other metrics which aren't in your interests and lobbying 401K providers and investment firms to steer clients away from investments in companies that don't meet their scoring system. There are already numerous alternative indexes that score stocks based on crap like Sustainability and Women's Empowerment and Diversity, Equity, and Inclusion. I am sure they are already targeting Index Providers Dow Jones (S&P) to only include companies that meet their standards.
The goal is simple: Make the oil companies build solar, make the banks loan money for pet projects, make you pay for it with your retirement and investing dollars, still tax away all the profits, and make you feel like you accomplished something.
Indexed funds perform well because they are diversified, low cost, and low turnover. If you screen for those characteristics and analyze the data over a long enough period, you will find some active funds that have beaten indexed funds significantly over time, but you will also see a lot more that haven't.
Warning: this isn't as simple as it sounds. Survivorship bias affects your results.
All that said, Indexed Funds are a prudent method of investing for low information and low effort investors, just understand what is happening out there. Also, some Indexed Funds are more of a quantitative screen, such as some of the dividend funds, and those are pretty good, at least for the time being.
Blackrock has, plus all of those so called "activist investors".
It's simple. The same people who get banks and insurance companies to drop services for conservative orgs they don't like, like the NRA for instance, are applying a social credit score and ESG score and any of a thousand other metrics which aren't in your interests and lobbying 401K providers and investment firms to steer clients away from investments in companies that don't meet their scoring system. There are already numerous alternative indexes that score stocks based on crap like Sustainability and Women's Empowerment and Diversity, Equity, and Inclusion. I am sure they are already targeting Index Providers Dow Jones (S&P) to only include companies that meet their standards.
The goal is simple: Make the oil companies build solar, make the banks loan money for pet projects, make you pay for it with your retirement and investing dollars, still tax away all the profits, and make you feel like you accomplished something.
Indexed funds perform well because they are diversified, low cost, and low turnover. If you screen for those characteristics and analyze the data over a long enough period, you will find some active funds that have beaten indexed funds significantly over time, but you will also see a lot more that haven't.
Warning: this isn't as simple as it sounds. Survivorship bias affects your results.
All that said, Indexed Funds are a prudent method of investing for low information and low effort investors, just understand what is happening out there. Also, some Indexed Funds are more of a quantitative screen, such as some of the dividend funds, and those are pretty good, at least for the time being.
Posted on 11/28/23 at 11:49 am to SlidellCajun
I mean, if you think it’ll continue to outperform the index then sure.
I have almost 20% of my portfolio in individual stocks, half of which is in my company’s stock that I will sell soon and move to an index. Excluding what I get from work, I can tell you that I do not always outperform the market.
I have almost 20% of my portfolio in individual stocks, half of which is in my company’s stock that I will sell soon and move to an index. Excluding what I get from work, I can tell you that I do not always outperform the market.
Posted on 11/28/23 at 5:12 pm to SlidellCajun
shite, why not just buy VTI? Outperformed SPY by 35% cumulatively since inception in 2001.
But has also underperformed by 15% in the past 10 years.
Ultimately, I really like indexing, but which index? How about value vs growth? Mega-cap vs large-cap vs mid cap vs etc?
IUSV (large cap value ETF) has outperformed SPY and QQQ by nearly 90% and 70%, respectively, since inception in 2000 (476% v 388% v 408%), but has underperformed by 60% and 260%, respectively, in the last 10 years (153% v 210% v 415%). What time frame is relevant?
I think indexes should be a core position, but it’s a little more involved than just buy SPY. Or maybe it’s not.
But has also underperformed by 15% in the past 10 years.
Ultimately, I really like indexing, but which index? How about value vs growth? Mega-cap vs large-cap vs mid cap vs etc?
IUSV (large cap value ETF) has outperformed SPY and QQQ by nearly 90% and 70%, respectively, since inception in 2000 (476% v 388% v 408%), but has underperformed by 60% and 260%, respectively, in the last 10 years (153% v 210% v 415%). What time frame is relevant?
I think indexes should be a core position, but it’s a little more involved than just buy SPY. Or maybe it’s not.
This post was edited on 11/28/23 at 5:13 pm
Posted on 11/28/23 at 6:02 pm to SlidellCajun
quote:If you can stomach the vol, then ultra-long-term, it's the right answer. Most people - at least psychologically - don't handle periods very well when they are down 40%
s I’ve aged, it’s more and more clear to me that just buying the SPY, QQQ, RUT brings better returns and with much less work.
Can anyone make a case for active management?
Posted on 11/28/23 at 8:57 pm to SlidellCajun
The argument against that strategy is that the inevitable mean reversion in passive equity inflows to outflows will force both passive and active funds to sell shares of the top holdings in both strategies and there won’t be anybody there to buy them and buybacks will decrease on top of that. It’s a momentum strategy marketed as smart low cost retirement planning.
The problem with this argument is 1) timing and will there be a miracle productivity increase that prevents a loss of income that coincides with our demographics 2) the equity and bond market have been concentrating since the 80s and it’s turned into a feedback loop of capital inflows and lower costs of debt/equity which leads to higher share buybacks combined with higher market share and pricing power for the worlds largest companies. It’s not likely to reverse without a huge antitrust push.
I personally do both for retirement planning and I try to stay away from mega cap equities on the active side since I’m already exposed.
The problem with this argument is 1) timing and will there be a miracle productivity increase that prevents a loss of income that coincides with our demographics 2) the equity and bond market have been concentrating since the 80s and it’s turned into a feedback loop of capital inflows and lower costs of debt/equity which leads to higher share buybacks combined with higher market share and pricing power for the worlds largest companies. It’s not likely to reverse without a huge antitrust push.
I personally do both for retirement planning and I try to stay away from mega cap equities on the active side since I’m already exposed.
Posted on 11/28/23 at 9:36 pm to slackster
SPY and QQQ have a lot of the same stocks. VTI will have the same stocks as both and others. The argument that one index could outperform another isn’t a reason to not rely only on an index. Any of the major index funds is a guaranteed win long term. What you are avoiding is loss and any single stock could take a significant loss. As Buffett said, your main goal should be not losing money because you have to do twice as well to make it back.
All that said, I do enjoy playing the market with individual stocks and have over $60,000 in my play money account. This is mainly a form of entertainment and something to do. I think of it as gambling with better odds. All my retirement investments are in index funds.
All that said, I do enjoy playing the market with individual stocks and have over $60,000 in my play money account. This is mainly a form of entertainment and something to do. I think of it as gambling with better odds. All my retirement investments are in index funds.
This post was edited on 11/28/23 at 9:40 pm
Posted on 11/28/23 at 11:05 pm to slackster
quote:
I think indexes should be a core position, but it’s a little more involved than just buy SPY. Or maybe it’s not.
This is honestly where I am.
Unless future returns are significantly down from historical average over the next 20ish years, I'll be sleeping well and eating good.
To me, just buying VOO is very very clearly the easiest way to make the most amount of money with the least amount of risk and effort.
I never have to think about it, I never have to discuss anything with a advisor, I never have to worry about picking a winner and getting out of a loser...
People try so hard and devote so much time and energy to beating the market. Why? Matching the market provides a pretty incredible risk adjusted return over the long term, which is what I am planning for.
People who do this shite all day every day, who eat sleep and breathe this shite fail all the damn time and sometimes fail spectacularly to beat the SP500. Why bother?
Posted on 11/29/23 at 6:32 am to SlidellCajun
It is as easy as index fund investing. And that's why Warren Buffett and a ton others have always advocated for simply buying low cost s&p 500 index funds as your main retirement investing strategy.
My dad was an early index fund adopter and he says his 401k has averaged over 11% returns per year since the early 80s. 11% compounding over 40+ years without having to lift a finger is amazing.
Sure not all 40 year spans will result in 11% average returns, but it's still by far the easiest and lowest risk way to outpace inflation and save for retirement.
I do like to trade with play money in my brokerage account as well, but all retirement goes into index funds.
My dad was an early index fund adopter and he says his 401k has averaged over 11% returns per year since the early 80s. 11% compounding over 40+ years without having to lift a finger is amazing.
Sure not all 40 year spans will result in 11% average returns, but it's still by far the easiest and lowest risk way to outpace inflation and save for retirement.
I do like to trade with play money in my brokerage account as well, but all retirement goes into index funds.
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