"Keep it Simple With Index Funds"

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Taylor Larimore
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"Keep it Simple With Index Funds"

Post by Taylor Larimore » Fri May 18, 2018 2:55 pm

Daniel Sotiroff, a manager research analyst for Morningstar, has written a very Bogleheadish article about index funds. These are excerpts:
"The number of complex investment strategies available to investors has never been greater. But most investors are probably still best served by a few simple, market-cap-weighted index funds."

"The rationale for using a market-cap-weighted index fund goes beyond market efficiency."

"Complex strategies tend to have a lot of moving parts working together to produce the desired performance. Systems with a large number of components are exposed to a larger number of failure points, thus increasing the probability that the system will break down."

"Warren Buffett's bet with Ted Seides--that Vanguard 500 Index (VFIAX) would beat a fund of hedge funds--is another well known take on the same theme: simple beats complicated."

"Another reason these complicated investment strategies fail is they tend to charge higher fees. It’s simple arithmetic that expenses directly eat into investment returns. Cutting expenses is an evergreen and persistent benefit, a guarantee of sorts."

"Low fees and low turnover are central to the thesis that cap-weighted indexes will be among the top-performing strategies in their respective Morningstar Categories. The less you spend the more is left to compound. It's not a theory, it's a mathematical inevitability."

"The concept of Occam's razor is a fitting way to summarize my perspective: When two or more choices are available, often the simpler solution leads to better results."
Keep it Simple With Index Funds

Thank you Mr. Sotiroff.

Best wishes.
Taylor
"Simplicity is the master key to financial success." -- Jack Bogle

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Bruce
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Re: "Keep it Simple With Index Funds"

Post by Bruce » Fri May 18, 2018 3:19 pm

Taylor

Thanks for sharing the article.

I especially enjoyed the example of the Carthage College investment fund manager, using mostly easily available low cost Vanguard index funds and still outperforming the Harvard Investment portfolio over a recent 10 year period, as well as 90% of his college endowment investing peers!

Looking forward to the upcoming June 2018 release of your book, "The Bogleheads' Guide to the Three-Fund Portfolio: How a Simple Portfolio of Three Total Market Index Funds Outperforms Most Investors with Less Risk".

best regards,
Bruce
Bruce | | Winner of the 2017 Bogleheads Contest | | "Simplicity is the master key to financial success."

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Re: "Keep it Simple With Index Funds"

Post by FactualFran » Fri May 18, 2018 3:35 pm

The article mentioned Occam's razor. Here how John Bogle put it in The Twelve Pillars of Wisdom in the Epilogue of “Bogle of Mutual Funds: New Perspectives for the Intelligent Investor”.
When all else fails, fall back on simplicity. If you have a major investment decision to make, there are an infinite number of solutions that would be worse than this one: commit, over a period of a few years, half of your assets to a stock index fund and half to a bond index fund. Ignore interim fluctuations in their net asset values. Hold your positions for as long as you live, subject only to infrequent and marginal adjustments as your circumstances change. Occam's razor—a thesis set forth 600 years ago and often affirmed by experience since then—should encourage you: when there are multiple solutions to a problem, choose the simplest one.

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Re: "Keep it Simple With Index Funds"

Post by fortyofforty » Fri May 18, 2018 3:53 pm

Thank you for posting this, Taylor. No matter how many times we've heard the same message, it never hurts to hear it again. Because the temptation to tinker and tweek and touch and tangle is so strong. In investing, less is more.
Indexing works, not because of magic, but because of math. | Diligentia. Vis. Celeritas. - Jeff Cooper | Original Vanguard Diehard

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stemikger
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Re: "Keep it Simple With Index Funds"

Post by stemikger » Fri May 18, 2018 4:09 pm

Thanks for posting this Taylor!
Choose Simplicity ~ Stay the Course!! ~ Press on Regardless!!!

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SeeMoe
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Re: "Keep it Simple With Index Funds"

Post by SeeMoe » Fri May 18, 2018 4:52 pm

We are indebted to Doctor Bogle for making very inexpensive Index Funds available to us over the years. Some of our bond funds are managed, but our total Vanguard portfolio(ER) expenses are an astonishing low 0.09%, Thanks to indexing! We’ve saved tens of thounds of dollars because of indexing, plus low fees in general all adding to the power of compounding..

SeeMoe.. :mrgreen:
"By gnawing through a dike, even a Rat can destroy a nation ." {Edmund Burke}

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Taylor Larimore
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Re: "Keep it Simple With Index Funds"

Post by Taylor Larimore » Fri May 18, 2018 6:08 pm

fortyofforty wrote:
Fri May 18, 2018 3:53 pm
Thank you for posting this, Taylor. No matter how many times we've heard the same message, it never hurts to hear it again. Because the temptation to tinker and tweek and touch and tangle is so strong. In investing, less is more.
fortyofforty:
The truth must be told over and over again because lies are constantly being told about it. -- Rick Ferri
Best wishes.
Taylor
"Simplicity is the master key to financial success." -- Jack Bogle

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Re: "Keep it Simple With Index Funds"

Post by 2015 » Fri May 18, 2018 7:19 pm

fortyofforty wrote:
Fri May 18, 2018 3:53 pm
Thank you for posting this, Taylor. No matter how many times we've heard the same message, it never hurts to hear it again. Because the temptation to tinker and tweek and touch and tangle is so strong. In investing, less is more.
+1
I would add: in life, less is more. More satisfying, more fulfilling, more freeing. Complexity is what the devil to plays with when he's bored.

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Re: "Keep it Simple With Index Funds"

Post by abuss368 » Sat May 19, 2018 3:12 pm

Taylor -

Thank you for sharing.
John C. Bogle - Two Fund Portfolio: Total Stock & Total Bond. "Simplicity is the master key to financial success."

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