Thank you again. I appreciate the information and knowledge. I do not want to assume what you are thinking. If I can deduct some theories from some of your earlier comments, do you feel that it is better to try to match the entire investing market as possible minus the lowest possible expenses because you feel, in general, it is better to try to match the returns of the market as close as possible (if you can not beat them join them)? And that, sector funds which may be profitable at times but in the long run will not match the entire investing market? Again, just trying to gather as much investing knowledge as possible. I will be gone for a little while today so I may not be able to reply until latter.
More or less.
I buy the entire market because I don't have any knowledge that the rest of the market doesn't have. In fact, I almost certainly have much less. Just because I have a particular degree and work in a particular field doesn't mean I know more about its future profits than others. Even if I did, that doesn't help. Because in order to determine whether a particular company or sector is going to outperform, I need to be able to properly evaluate every other company and sector.
Even if I was reasonably convinced that tilting my portfolio away from the total market will give me an extra percent in the long run, I am not 100% sure. And I have been warned and have seen that, for example, Small Cap Value funds can underperform for long periods of time. Yes, everyone says they are in it "for the long term" and not worried about day to day fluctuations. This is especially true with posts from young people (I am one!).
I don't think people understand what the long term really means. For someone like me, it may mean as long or longer than I have been alive. It may mean I may go my entire working career without that reward showing up until the end. Am I really prepared to underperform for decades and stay the course? No, and I doubt most people posting here are prepared to do that either. As evidenced by the fact that they are essentially chasing a fad to try to goose their returns; I don't refer to those that might really understand it (EDN, Rick, Larry, whomever), but the average person who writes:
"I finally decided on a portfolio. I am going to do a small value tilt of 20%, because I am in it for the long haul."
I am sure if I had been around long enough to see many other popular investment strategies, I could substitute those in for "small value tilt" and the same kind of people would be posting the same kind of thing.
It is an unfortunate consequence of our mortality that we do not know whether we are suited for things like this until the time and opportunity has passed us by.
"Index funds have a place in your portfolio, but you'll never beat the index with them." - Words of wisdom from a Fidelity rep