Fund Performance Comparisons

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lewisautomatic
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Fund Performance Comparisons

Post by lewisautomatic »

I was comparing these Vanguard stock mutual funds...VWUAX, VWUSX, VIGAX and the VTSAX. The expense ratio for the VWUAX is .28% and the VWUSX is .39% vs the VIGAX .05% and the VTSAX .04%. Looking at the average annual performance for each fund, the VWUAX and VWUSX returns have been significantly higher than VTSAX over the the years even with higher expense ratios. So, my question is, why invest in VTSAX when the other funds have performed much better over the years?
000
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Re: Fund Performance Comparisons

Post by 000 »

Because you can't buy past performance.

The only thing that matters is future performance.

Why do you think those funds will continue their past performance?

They may. They may not. Vanguard's active funds are fine, but not magical.
alex_686
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Re: Fund Performance Comparisons

Post by alex_686 »

First, it might be helpful for you to edit your post and included the full name of the index.

For VWUAX & VWUSX - well - they are the same fund. Just one is the investor class and one is the admiral class. Different minimums. Postage to send out the annual report is the same for a fund for a investor with $1k or a one with $1m. So different expense ratios.

As for VWUSX, VIGAX and the VTSAX - different funds tracking different indexes. Of course you are going to get different returns. And of course historical returns mean nothing. US Growth has had a great year. Will it continue? eh - kind of a coin flip.

Write up your ISP, and figure out your goals and risk tolerance. Then pick the index that best meets your goals and risk tolerance. Then find a good index fund that matches that index.
Former brokerage operations & mutual fund accountant. I hate risk, which is why I study and embrace it.
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lewisautomatic
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Re: Fund Performance Comparisons

Post by lewisautomatic »

Good points but I think historical growth/past performance does mean something and I'd sure want to know how a fund has performed YTD, 1yr, 3yr, 5yr 10yr and since inception before investing. I realize past performance is no guarantee of future results but if a fund has consistently outperformed another over the years, that is information to factor in to an investment decision.
MotoTrojan
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Re: Fund Performance Comparisons

Post by MotoTrojan »

lewisautomatic wrote: Fri Sep 18, 2020 8:34 pm Good points but I think historical growth/past performance does mean something and I'd sure want to know how a fund has performed YTD, 1yr, 3yr, 5yr 10yr and since inception before investing. I realize past performance is no guarantee of future results but if a fund has consistently outperformed another over the years, that is information to factor in to an investment decision.
There is too much wrong here to even try and convince you otherwise. I suggest you read replies here and other resources with an open mind.

One thought for you: If it were that easy, wouldn't everyone rush into the outperforming fund, driving the price up until that premium was completely erased (or worse, now negative)?
asif408
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Re: Fund Performance Comparisons

Post by asif408 »

lewisautomatic wrote: Fri Sep 18, 2020 8:34 pm Good points but I think historical growth/past performance does mean something and I'd sure want to know how a fund has performed YTD, 1yr, 3yr, 5yr 10yr and since inception before investing. I realize past performance is no guarantee of future results but if a fund has consistently outperformed another over the years, that is information to factor in to an investment decision.
Yes if you use 1,3,5, & 10 yr past performance you want to sell the best past performers and buy the worst past performers.
backpacker61
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Re: Fund Performance Comparisons

Post by backpacker61 »

lewisautomatic wrote: Fri Sep 18, 2020 8:34 pm Good points but I think historical growth/past performance does mean something and I'd sure want to know how a fund has performed YTD, 1yr, 3yr, 5yr 10yr and since inception before investing. I realize past performance is no guarantee of future results but if a fund has consistently outperformed another over the years, that is information to factor in to an investment decision.
Even 10 years is too short.

Years ago, I invested in FMAGX when it was "the one to own". And it was, consistently, for several years. Until it wasn't.

The funds you're looking at are all fine funds.

If you want to own low cost, actively managed mutual funds, the ones you mentioned would be hard to beat.

But "Growth" has had a pretty long run now, and at some point, I expect "Value" will enjoy it's time in the sun, and of course, there's no predicting when that will be.

With VTSAX, you will own the whole pond.
“Now shall I walk or shall I ride? | 'Ride,' Pleasure said; | 'Walk,' Joy replied.” | | ― W.H. Davies
rkhusky
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Re: Fund Performance Comparisons

Post by rkhusky »

Since inception doesn’t matter unless the dates are the same.

It is better to look at a plot than a few numbers. That way you can see if there were any short periods of under or over performance that are driving the overall performance. And you can try to figure out the likelihood of those periods occurring again.

You should check to see how your fund did in 2007-2009, which is outside the 10 year window now.
Mode32
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Re: Fund Performance Comparisons

Post by Mode32 »

MotoTrojan wrote: Fri Sep 18, 2020 8:37 pm
lewisautomatic wrote: Fri Sep 18, 2020 8:34 pm Good points but I think historical growth/past performance does mean something and I'd sure want to know how a fund has performed YTD, 1yr, 3yr, 5yr 10yr and since inception before investing. I realize past performance is no guarantee of future results but if a fund has consistently outperformed another over the years, that is information to factor in to an investment decision.
There is too much wrong here to even try and convince you otherwise. I suggest you read replies here and other resources with an open mind.

One thought for you: If it were that easy, wouldn't everyone rush into the outperforming fund, driving the price up until that premium was completely erased (or worse, now negative)?
I agree with your general premise, but then how are you suppose to factor in prior performance of funds in comparisons and decision making? Is it generally accepted that most actively managed funds that consistently perform well will fizzle out at some point, and it will be the broad index fund that eventually pulls through?

I bring this up only because I suggested (after being asked) to a close family member to replace Fidelity’s Contrafund (prior to covid) in her 401k with an S&P 500 index fund due to the higher ER of Contrafund. From what I’ve learned from this forum and readings, I remain confident that was the right recommendation although looking at Contrafund’s performance (especially YTD) makes me take a deep breath. Then, I think back to those that wrote about investing in Fidelity’s Megellion fund in the 80’s and 90’s, which reaffirms my recommendation.
Doctor Rhythm
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Re: Fund Performance Comparisons

Post by Doctor Rhythm »

Mode32 wrote: Fri Sep 18, 2020 10:32 pm
MotoTrojan wrote: Fri Sep 18, 2020 8:37 pm
lewisautomatic wrote: Fri Sep 18, 2020 8:34 pm Good points but I think historical growth/past performance does mean something and I'd sure want to know how a fund has performed YTD, 1yr, 3yr, 5yr 10yr and since inception before investing. I realize past performance is no guarantee of future results but if a fund has consistently outperformed another over the years, that is information to factor in to an investment decision.
There is too much wrong here to even try and convince you otherwise. I suggest you read replies here and other resources with an open mind.

One thought for you: If it were that easy, wouldn't everyone rush into the outperforming fund, driving the price up until that premium was completely erased (or worse, now negative)?
I agree with your general premise, but then how are you suppose to factor in prior performance of funds in comparisons and decision making? Is it generally accepted that most actively managed funds that consistently perform well will fizzle out at some point, and it will be the broad index fund that eventually pulls through?.
For passive investors, you don’t need to look at past performance when selecting a fund, except perhaps eyeballing the returns to make sure the fund closely tracks the benchmark. Such a fund will outperform the majority of its peers, because most active funds will lag behind their relevant benchmark. The longer the time frame examined, the greater the probability of active fund underperformance.

Here’s some data: https://www.ifa.com/articles/despite_br ... d_-_works/

https://www.morningstar.com/insights/20 ... vs-passive

And here’s an analogy:
Imagine a college class where you can be guaranteed to earn a B+ grade without studying or even showing up after the first day. If you want a different grade, you can take an optional final exam, but less than a quarter of test-takers will get an A, and many will get a C, D, or (rarely) an F. Oh, and by the way, most of your exam score is randomly determined. Would you take the exam or just happily accept the B+? A passive investors skips class and takes the B+. A Boglehead studies like crazy, goes to office hours, argues with the professor, but also takes the B+.
alex_686
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Re: Fund Performance Comparisons

Post by alex_686 »

lewisautomatic wrote: Fri Sep 18, 2020 8:34 pm Good points but I think historical growth/past performance does mean something and I'd sure want to know how a fund has performed YTD, 1yr, 3yr, 5yr 10yr and since inception before investing. I realize past performance is no guarantee of future results but if a fund has consistently outperformed another over the years, that is information to factor in to an investment decision.
For context I used to fo this for a living. What are you trying to figure out?

For index funds you want to focus on tracking error, or how close the index fund tracked the index. For active funds you don’t want to focus on Alpha, or the risk adjusted return over the index, even if this is the obvious answer. Alpha can disappear overnight. What you want to do is focus on the quality of the team and how they generate their performance. Then figure out if that style fits into your IPS.

But I don’t think this is what you are looking for. You seem really to be comparing different indexes. Asset returns are driven by by a set of factors. Long term interest rates, expect growth, and a risk premium are the 3 big ones. And yes, different indexes have different exposures and you can see this via historical analysis.

The problem is that these factors are not stable. They change from economic period to economic period. In the past 20 years I have seen a radical change in growth, international, and emerging market. I think I see a change in the size factor. I am confident that we are seeing another one due to low interest rates, asset-light companies, and demographics.
Former brokerage operations & mutual fund accountant. I hate risk, which is why I study and embrace it.
whereskyle
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Re: Fund Performance Comparisons

Post by whereskyle »

lewisautomatic wrote: Thu Sep 17, 2020 4:43 pm I was comparing these Vanguard stock mutual funds...VWUAX, VWUSX, VIGAX and the VTSAX. The expense ratio for the VWUAX is .28% and the VWUSX is .39% vs the VIGAX .05% and the VTSAX .04%. Looking at the average annual performance for each fund, the VWUAX and VWUSX returns have been significantly higher than VTSAX over the the years even with higher expense ratios. So, my question is, why invest in VTSAX when the other funds have performed much better over the years?
A growth fund like those mentioned takes more risk than a total market fund by holding fewer stocks. Take as much risk as you like, but don't expect consistent returns!
"I am better off than he is – for he knows nothing and thinks that he knows. I neither know nor think that I know." - Socrates. "Nobody knows nothing." - Jack Bogle
onourway
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Re: Fund Performance Comparisons

Post by onourway »

lewisautomatic wrote: Fri Sep 18, 2020 8:34 pm Good points but I think historical growth/past performance does mean something and I'd sure want to know how a fund has performed YTD, 1yr, 3yr, 5yr 10yr and since inception before investing. I realize past performance is no guarantee of future results but if a fund has consistently outperformed another over the years, that is information to factor in to an investment decision.
It really doesn't mean anything at all. Fully understanding this is one of the most important investing lessons one can learn.
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nisiprius
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Re: Fund Performance Comparisons

Post by nisiprius »

Tips:
  • Look at charts, not numbers. A picture is worth a thousand words, a chart is worth several hundred numbers, and you are kidding yourself if you believe the false accuracy of the tabulated numbers.
  • Find charts that go back to inception, not just the last ten years.
  • Find some way, acceptable to you, of evaluating risk along with return.
1) You didn't look at the whole history of the Vanguard US Growth Fund (VWUSX)!

Source

The big outperformance is all recent. VWUSX did great 2018-2020. VWUSX did perfectly OK, matched the market, 2000-2017. So of course it beat the market--over the last ten years.

Image

But look at what happens if you go further back.

Image

VWUSX pretty much matched the market up to 2000. Then it did catastrophically poorly. Then it pretty much matched the market up to 2018. Then it did really well.

Nobody really knows how to think about stuff like this. On the one hand, even the recent three years were not good enough to make up for those horrible earlier years. On the other hand, it was only once and seemingly a long time ago.

This "bursty" characteristic is true of most financial data.

The main point I want to make is how rich, complicated, and puzzling financial data is, and just how terrible and inadequate a view you get from 1-3-5-10-year return table.
Annual income twenty pounds, annual expenditure nineteen nineteen and six, result happiness; Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.
tibbitts
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Re: Fund Performance Comparisons

Post by tibbitts »

lewisautomatic wrote: Thu Sep 17, 2020 4:43 pm I was comparing these Vanguard stock mutual funds...VWUAX, VWUSX, VIGAX and the VTSAX.
Almost nobody has any idea what funds you're talking about because you don't spell out the names.

I can tell you from having owned it that Vanguard U.S. Growth for years that it has one of the worst reputations for performance among any Vanguard mutual fund. Probably you can't understand that unless you personally experienced the fund during and for quite a while after the tail end of the Lincoln management era. So if you go on past performance, based on funds that have dramatically underperformed their peers and any reasonable benchmark, it would be the poster-child for funds to avoid. Vanguard threw different managers at it and just nothing worked - everything management did was the worst thing at the worst time. It was like the fund name was cursed. Maybe I'd feel that way about Wellington if I'd owned it during the Bogle era at Wellington. That's why I say it might be something you have to have personally experience; something that has personally cost you money. For years I'd try to research mutual funds - at the library, before the internet was widely available - and consistently, I'd buy funds based on performance and reputation, and most of them would then immediately falter. A very few would remain good choices for a decade or more. If this was a few years ago, you'd be writing about one of them, Primecap, asking why it wasn't an obvious choice. In another era, it would have been Windsor - yet it's nowhere on your radar today. Starting and ending points in comparisons matter.

The fact that you don't seem to understand the share-class concept suggests that you might want to rethink investing until you've learned a little more.
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nisiprius
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Re: Fund Performance Comparisons

Post by nisiprius »

2) You must find a way of taking risk into account, somehow, when you make your comparisons. Otherwise, I assure you, you are going to be constantly swindled in small ways by active funds--and passive strategies!--when someone shows you only return and does not give you any tools for evaluating risk.

Here is a fund--the name doesn't really matter, but it happens to be QGMIX, the AQR Global Macro Fund, and the fund company gives "three-month Treasury bills" as the benchmark they think it should be measured against. Treasury bills are essentially cash, and behave much the same way as a bank account or a money market mutual fund.

Here is the performance table. This fund has beaten its benchmark over 1, 3, 5 years and since inception.

Image

Look at the table. Try not to peek ahead in this posting. Try to decide: if you had invested $10,000 on 4/8/2014, which would you have rather had it in? You could have matched the benchmark easily in a money market mutual fund (or a fund or ETF that invests in three-month Treasury bills). Would you have rather done that? Or would you have rather invested in QGMIX? Look at the table, make your best decision...

Now, look at the chart instead of the numbers.

Source

Image

An investment in QGMIX, from inception from today, absolutely, really, truly had higher average return than the benchmark (orange) or the money market fund (green). But for you, personally, would that higher risk have been worth going through all those $500 ups and downs... and a possibility that it would be in a "down" when you needed to sell... for that much improvement in return?

Again, I am not saying no investor could possibly have a reason for buying QGMIX. And this is the past, not the future. My point is how really bad those 1-3-5-10 year tables are for getting any idea of volatility, risk. If you are actually getting outperformance, that might well be and very often is at the "cost" of higher risk. It usually isn't as stark as in my carefully chosen example, but small amounts of outperformance often are not what they seem.
Last edited by nisiprius on Sat Sep 19, 2020 8:15 am, edited 2 times in total.
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nisiprius
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Re: Fund Performance Comparisons

Post by nisiprius »

3) So how can you get a good overall view of past performance, in a nutshell, that is better and more complete, and more honest than looking at 1-3-5-10 year numbers? There is a very simple (and unsatisfactory!) answer to this question. This is exactly what the Morningstar star ratings are trying to do, and in my opinion they do a fair, honest, and workmanlike job.

Too bad they are garbage.

The Morningstar star ratings don't look at raw performance. They take risk into account. They also measure funds against other funds in the same category, not apples versus orange. (McIntoshes versus Honeycrisps, maybe). And they use a (complicated) formula for weighting more recent and less recent results. And, this is important, by keeping it down to "one-to-five stars" they avoid false precision.

Why are the star ratings unsatisfactory? Because Morningstar itself has said that the star ratings have very very little persistence or predictive power. For example, this chart is from Morningstar itself and shows how funds with different star ratings performed in the time periods after the ratings were given.

Image

Morningstar--hardly a disinterested party!--has tried to say that the star ratings do have some predictive power, not zero, but has also said flatly--and more than once--that

Fund Fees Predict Future Success or Failure
The expense ratio is the most proven predictor of future fund returns. We find that it is a dependable predictor when we run the data. That's also what academics, fund companies, and, of course, Jack Bogle, find when they run the data.
Annual income twenty pounds, annual expenditure nineteen nineteen and six, result happiness; Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.
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Taylor Larimore
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PAST PERFORMANCE -- PLEASE IGNORE IT

Post by Taylor Larimore »

lewisautomatic wrote: Thu Sep 17, 2020 4:43 pm I was comparing these Vanguard stock mutual funds...VWUAX, VWUSX, VIGAX and the VTSAX. The expense ratio for the VWUAX is .28% and the VWUSX is .39% vs the VIGAX .05% and the VTSAX .04%. Looking at the average annual performance for each fund, the VWUAX and VWUSX returns have been significantly higher than VTSAX over the the years even with higher expense ratios. So, my question is, why invest in VTSAX when the other funds have performed much better over the years?
lewisautomatic:

Welcome to the Bogleheads Forum.

Many investors, probably most, believe that using past performance to select mutual funds makes logical sense. Indeed, past performance is very useful in purchasing most products -- but NOT mutual funds and ETFs.

In 1998 Vanguard U.S. Growth Fund had the 2nd BEST ten-year return of all Vanguard Funds. In 2008, ten-years later, Vanguard U.S. Growth Fund had the WORST ten-year return of all Vanguard Funds.

In 2010 Vanguard Small Cap Value Fund was the darling of Vanguard investors gaining 24.8%. In December 2018 Small Cap Value Funds were at the BOTTOM of all 15 Morningstar style categories.

Also in 2010, Morningstar named the Fairholme Fund, "FUND OF THE DECADE" for its performance from 2000 through 2009. In April 2011 the Fairholme Fund was in the BOTTOM 1% of 1,233 Large Value mutual Funds.

You can read what experts say about past performance HERE.

You can read what experts say about total market index funds HERE.

Best wishes.
Taylor
Jack Bogle's Words of Wisdom: "The biggest mistake investors make is looking backward at performance and thinking it’ll recur in the future." "No analysis of the past, no matter how painstaking, assures future superiority."
Last edited by Taylor Larimore on Sat Sep 19, 2020 9:51 am, edited 2 times in total.
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MotoTrojan
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Re: Fund Performance Comparisons

Post by MotoTrojan »

Mode32 wrote: Fri Sep 18, 2020 10:32 pm
MotoTrojan wrote: Fri Sep 18, 2020 8:37 pm
lewisautomatic wrote: Fri Sep 18, 2020 8:34 pm Good points but I think historical growth/past performance does mean something and I'd sure want to know how a fund has performed YTD, 1yr, 3yr, 5yr 10yr and since inception before investing. I realize past performance is no guarantee of future results but if a fund has consistently outperformed another over the years, that is information to factor in to an investment decision.
There is too much wrong here to even try and convince you otherwise. I suggest you read replies here and other resources with an open mind.

One thought for you: If it were that easy, wouldn't everyone rush into the outperforming fund, driving the price up until that premium was completely erased (or worse, now negative)?
I agree with your general premise, but then how are you suppose to factor in prior performance of funds in comparisons and decision making? Is it generally accepted that most actively managed funds that consistently perform well will fizzle out at some point, and it will be the broad index fund that eventually pulls through?

I bring this up only because I suggested (after being asked) to a close family member to replace Fidelity’s Contrafund (prior to covid) in her 401k with an S&P 500 index fund due to the higher ER of Contrafund. From what I’ve learned from this forum and readings, I remain confident that was the right recommendation although looking at Contrafund’s performance (especially YTD) makes me take a deep breath. Then, I think back to those that wrote about investing in Fidelity’s Megellion fund in the 80’s and 90’s, which reaffirms my recommendation.
If a thousands people flip a quarter over and over, some of them are bound to only get heads for quite some time. If a manager actually does have talent they’ll be arbitraged away; another factor (see Buffett) is that their assets get too large to be effective (can only invest in mega cap). This is why Jim Simons caps his fund at $10B and returns all gains in distributions.

If you want to go active go for it, but past returns is not an appropriate way to pick any investment in my view. I’d wager if you invested in the fund with the best 10 year return and swapped every 5 you’d undershoot by many many percent; 10 years is meaningless (see the nisiprius charts above).
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Re: Fund Performance Comparisons

Post by MotoTrojan »

Put simply, if it were this easy, you’d be a billionaire manager-of-managers by now who simply invests peoples money in the top performing funds for them and takes 2% and 20% of gains like a hedge fund.
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Re: Fund Performance Comparisons

Post by MotoTrojan »

tibbitts wrote: Sat Sep 19, 2020 7:47 am

The fact that you don't seem to understand the share-class concept suggests that you might want to rethink investing until you've learned a little more.
This. This reaffirms that OP is just seeing tickers and not really thinking about the actual holdings or strategies being applied.
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Re: Fund Performance Comparisons

Post by MotoTrojan »

asif408 wrote: Fri Sep 18, 2020 9:22 pm
lewisautomatic wrote: Fri Sep 18, 2020 8:34 pm Good points but I think historical growth/past performance does mean something and I'd sure want to know how a fund has performed YTD, 1yr, 3yr, 5yr 10yr and since inception before investing. I realize past performance is no guarantee of future results but if a fund has consistently outperformed another over the years, that is information to factor in to an investment decision.
Yes if you use 1,3,5, & 10 yr past performance you want to sell the best past performers and buy the worst past performers.
Now there is a fellow contrarian!!!
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Re: Fund Performance Comparisons

Post by midareff »

lewisautomatic wrote: Fri Sep 18, 2020 8:34 pm Good points but I think historical growth/past performance does mean something and I'd sure want to know how a fund has performed YTD, 1yr, 3yr, 5yr 10yr and since inception before investing. I realize past performance is no guarantee of future results but if a fund has consistently outperformed another over the years, that is information to factor in to an investment decision.
Those funds are all growth funds and over the last few years, maybe a decade... see Nisi's charts, in that time period large growth has outperformed value. Tomorrow's news could be vastly different, as the news about tech finds was in 1997 and 1998. VWUSX holds 247 companies, which makes it wholly insufficient to be deemed diversified, and it is certainly not sufficiently diversified to achieve that fabled free lunch on Wall Street. I suppose these days to get a lottery ticket to the free lunch you must own Total US and Total International in any arguable percentage ratio since it seems all ratios are argueable. If one wanted to dedicate a slice of their investment portfolio, maybe 5% or so, to this sector (large cap growth) I would not have an issue with it. ... as Commander Spock once said, had he lived, it's sauce for the goose Jim.
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lewisautomatic
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Re: Fund Performance Comparisons

Post by lewisautomatic »

Thanks to all of you who replied. Nothing like the collective wisdom on the Bogleheads forums to answer questions and educate. I'm going to stick with VTSAX. :-)
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