Novice Investor

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frustratedgolfer
Posts: 29
Joined: Sun Sep 16, 2007 5:52 pm

Novice Investor

Post by frustratedgolfer »

I am a Merrill Lynch customer who will shortly move my portfolio to Vanguard and start managing the portfolio myself. My reasons are high costs and questionable advise.
My question is; for those of you that do not use index investing are you successful in beating the index returns? Am I correct to assume that the only reason for using managed accounts is to outperform index returns? Thanks!
Duckhead
Posts: 13
Joined: Wed Jun 06, 2007 10:28 am

Post by Duckhead »

This will be good. Question crafted perfectly... can't wait to hear the responses, don't hold your breath.

Frustratedgolfer (aren't we all) Wish i could help here but am placing myself squarely in the pursuit of Alpha.... which, i am told, just can't be.

Congrats for getting out from under ML.
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BogleFan
Posts: 268
Joined: Wed Jun 06, 2007 10:09 am

Re: Novice Investor

Post by BogleFan »

frustratedgolfer wrote: Am I correct to assume that the only reason for using managed accounts is to outperform index returns? Thanks!
I would frame the sentense as "the only reason for using managed accounts is a "DREAM" and desire to outperform index returns!". In the long run, the sweet dream never comes true.
xenial
Posts: 2720
Joined: Tue Feb 27, 2007 1:36 am
Location: USA

Re: Novice Investor

Post by xenial »

frustratedgolfer wrote:I am a Merrill Lynch customer who will shortly move my portfolio to Vanguard and start managing the portfolio myself. My reasons are high costs and questionable advise.
Welcome to the Bogleheads Forum! Both Vanguard indexed and managed funds are far superior to anything you'd get at Merrill Lynch, so you're making a good move.
frustratedgolfer wrote:My question is; for those of you that do not use index investing are you successful in beating the index returns? Am I correct to assume that the only reason for using managed accounts is to outperform index returns?
While managed funds exist because of the hope of beating index returns, there is no real evidence of success. Certainly you can find managed funds which creamed their benchmark indexes in the past. There are a whole lot of managed funds after all, and some of them are bound to do real well even if returns are totally random. Outperforming funds (and managers) get tons of attention from the financial press, so you get the impression that it's easy to outperform. The problem is that funds which did well in the past won't necessarily do well in the future. The outperformance may have been due to luck (the most likely case in my opinion), the star manager may leave, or the fund may gather so much money that the manager is no longer able to execute his investment strategy efficiently (the "asset bloat" problem).

Best wishes,
Ken
InvestingMom
Posts: 503
Joined: Mon Aug 20, 2007 2:45 pm

Re: Novice Investor

Post by InvestingMom »

frustratedgolfer wrote:I am a Merrill Lynch customer who will shortly move my portfolio to Vanguard and start managing the portfolio myself. My reasons are high costs and questionable advise.
My question is; for those of you that do not use index investing are you successful in beating the index returns? Am I correct to assume that the only reason for using managed accounts is to outperform index returns? Thanks!
I don't think you will find many investors on this forum who do not use indexes. However, I am sure there are many who use some managed accounts to supplement their index funds. Coincidentally I just posed a similar question but geared towards small cap and foreign funds, so you can watch that and see if we get any further advice on this.

To answer your second question, Yes, I believe that index funds are the way to go especically as a core holding. I believe that over time, most managers cannot outperform the indexes. You might check out the readings as recommended in this forum under the library.

There are several other reasons why to go with index funds.
*They generally have lower costs.
*If you are investing in taxable accounts, you are less likely to have to trade your index funds (because over time they will do fine) thereby compounding your money similar to a tax deferred account (because you will not have to pay taxes on your***hopefully*** gains). If you invest in managed accounts you may do well over short periods but will likely want to sell them after a few years.
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