Think no one can beat the index?

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southwest_stacker
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Think no one can beat the index?

Post by southwest_stacker »

I am not advocating for this I strongly believe in index investing and will continue to do so but this was given to me this week.

https://www.capitalgroup.com/advisor/pd ... 619801.pdf

It is clearly sales propaganda for American funds but I would like some commentary on it.

Doing a little research it looks like many of the American funds got a leg up early on and thus have stayed ahead over the long haul but looking at a more recent history few if any of the American funds have outperformed VTSAX over the past 1,3,5,10 or 15 years.

I am meeting with the guy who gave me this in a couple days. Nice guy, family friend, and there is zero chance I am buying but rather than just telling him no I would like some points to make about it.
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cheese_breath
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Re: Think no one can beat the index?

Post by cheese_breath »

southwest_stacker wrote: Sat Aug 08, 2020 10:48 am ... I am meeting with the guy who gave me this in a couple days. Nice guy, family friend, and there is zero chance I am buying but rather than just telling him no I would like some points to make about it.
You'll be making a mistake. Nice guy, family friend, or whatever else he's still a salesman. He's already heard whatever points you think you can make and has prepared counter arguments to them.
The surest way to know the future is when it becomes the past.
Normchad
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Re: Think no one can beat the index?

Post by Normchad »

Some managers will beat the index. There is no doubt about that.

The problems are many though:
1. You only know who has beaten it in the past
2. You can’t know who will beat it in the future
3. So, there really isn’t anything you can do about it
4. Rock star fund managers like Peter Lynch and Bill Miller can be high flyers for a very long time. It’s not possible to know in advance though, how long their run will be.
5. Even those guys eventually return to earth.
6. Survivorship bias is powerful. Not saying they did this, but American Funds could start 30 new funds, all investing in wildly different things. A couple of those will do well. After five years, kill off the losing funds, and tout the few that did well. Put out a brochure “We know how to beat the index. Check out these funds that absolutely crushed it over the last five years,”

It’s always the same problem. It’s a huge universe, and somebody will be hugely successful. But we can’t predict exactly who or what ahead of time, so there is nothing here to exploit for our advantage. We just index and buy the whole stack, so that we don’t miss out.
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InvestorNewb
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Re: Think no one can beat the index?

Post by InvestorNewb »

I wouldn't waste your time or his.
My Portfolio: VTI [US], VXUS [Int'l], VNQ [REIT], VCN [Canada] (largest to smallest)
Normchad
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Re: Think no one can beat the index?

Post by Normchad »

cheese_breath wrote: Sat Aug 08, 2020 10:53 am
southwest_stacker wrote: Sat Aug 08, 2020 10:48 am ... I am meeting with the guy who gave me this in a couple days. Nice guy, family friend, and there is zero chance I am buying but rather than just telling him no I would like some points to make about it.
You'll be making a mistake. Nice guy, family friend, or whatever else he's still a salesman. He's already heard whatever points you think you can make and has prepared counter arguments to them.
I’m jaded here as well. The key word is “salesman”. These are not investment professionals. They are just salesmen. They usually don’t know what they’re talking about. A lot of them are sincere, and think they are doing right by you, but they are still incompetent. When you point out the many basic flaws in their literature, they are incapable of even understanding what you are talking about.

You aren’t dealing with investment geniuses trying to swindle you, you are dealing with incompetent salesmen who don’t know anything but the sales pitch they’ve been given.

They are the worst. Because they are your friend from church, or another parent from the softball team, etc. and they go out and give terrible advice to teachers, policemen, etc.
Robot Monster
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Re: Think no one can beat the index?

Post by Robot Monster »

Bring him here and let us have at him.
Jags4186
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Re: Think no one can beat the index?

Post by Jags4186 »

cheese_breath wrote: Sat Aug 08, 2020 10:53 am
southwest_stacker wrote: Sat Aug 08, 2020 10:48 am ... I am meeting with the guy who gave me this in a couple days. Nice guy, family friend, and there is zero chance I am buying but rather than just telling him no I would like some points to make about it.
You'll be making a mistake. Nice guy, family friend, or whatever else he's still a salesman. He's already heard whatever points you think you can make and has prepared counter arguments to them.
Personally, I’ve never heard an effective counter argument to “no.”
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southwest_stacker
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Re: Think no one can beat the index?

Post by southwest_stacker »

cheese_breath wrote: Sat Aug 08, 2020 10:53 am
southwest_stacker wrote: Sat Aug 08, 2020 10:48 am ... I am meeting with the guy who gave me this in a couple days. Nice guy, family friend, and there is zero chance I am buying but rather than just telling him no I would like some points to make about it.
You'll be making a mistake. Nice guy, family friend, or whatever else he's still a salesman. He's already heard whatever points you think you can make and has prepared counter arguments to them.
I know he is a salesman and I am not going to be sold. I am not worried about that. He was friends with with my parents who are now deceased. He did manage their retirement portfolio but when they passed I transferred it all to vanguard. I have hired him on a fee only basis to do some early retirement projections for me. I made it very clear to him that is all I wanted and I was managing my own accounts and wasn’t using his other services. My parents didn’t understand investing and didn’t want to. I frequently looked at their stuff with him and think he was doing an ok job for them for what it was.

I fully realize at the end of the day he is still going to be selling managed funds and I am still going to be a believer in indexing but I am actually looking forward to having a little debate about it even though it won’t change anything.
Anon9001
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Re: Think no one can beat the index?

Post by Anon9001 »

Guess it depends where you are living. China A shares indexes are complete trash in comparison to active funds.Image

Youtube link:https://www.youtube.com/watch?v=uVcV0H4qtgw#t=34m00s

Sharpe metric seems to be MIA here :?:

As regards to American Funds can't comment too much on them as I don't know them. But criteria for good active management should be high active share,low turnover,skin in game and transparency.
Normchad
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Re: Think no one can beat the index?

Post by Normchad »

southwest_stacker wrote: Sat Aug 08, 2020 11:06 am
cheese_breath wrote: Sat Aug 08, 2020 10:53 am
southwest_stacker wrote: Sat Aug 08, 2020 10:48 am ... I am meeting with the guy who gave me this in a couple days. Nice guy, family friend, and there is zero chance I am buying but rather than just telling him no I would like some points to make about it.
You'll be making a mistake. Nice guy, family friend, or whatever else he's still a salesman. He's already heard whatever points you think you can make and has prepared counter arguments to them.
I know he is a salesman and I am not going to be sold. I am not worried about that. He was friends with with my parents who are now deceased. He did manage their retirement portfolio but when they passed I transferred it all to vanguard. I have hired him on a fee only basis to do some early retirement projections for me. I made it very clear to him that is all I wanted and I was managing my own accounts and wasn’t using his other services. My parents didn’t understand investing and didn’t want to. I frequently looked at their stuff with him and think he was doing an ok job for them for what it was.

I fully realize at the end of the day he is still going to be selling managed funds and I am still going to be a believer in indexing but I am actually looking forward to having a little debate about it even though it won’t change anything.
It would be good to know if he’s a fiduciary.
Robot Monster
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Re: Think no one can beat the index?

Post by Robot Monster »

Ask him if his funds beat QQQ.
whereskyle
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Re: Think no one can beat the index?

Post by whereskyle »

southwest_stacker wrote: Sat Aug 08, 2020 10:48 am I am not advocating for this I strongly believe in index investing and will continue to do so but this was given to me this week.

https://www.capitalgroup.com/advisor/pd ... 619801.pdf

It is clearly sales propaganda for American funds but I would like some commentary on it.

Doing a little research it looks like many of the American funds got a leg up early on and thus have stayed ahead over the long haul but looking at a more recent history few if any of the American funds have outperformed VTSAX over the past 1,3,5,10 or 15 years.

I am meeting with the guy who gave me this in a couple days. Nice guy, family friend, and there is zero chance I am buying but rather than just telling him no I would like some points to make about it.
1. Survivorship bias. This ad likely makes a reader think that the provider has never closed a fund for underperformance or rolled one into a better-performing fund to erase its record and pad its averages.

2. Closed funds. The ad doesn't say whether new investors can invest in the very old, successful funds. If a new investor can't invest in an old fund, why should they care about an unavailable fund's performance? On this note, what are "class F-2 shares"?

3. Are any of the provider's "equity-focused" funds not included? If so, why?
"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
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goingup
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Re: Think no one can beat the index?

Post by goingup »

American Funds are generally well-regarded here as well-managed funds. However, they are "sold" by advisors like Ed Jones. The retail shares have loads. Depending on which share class you are in, you could have 5.75% deducted every time you make a fund purchase. That load is not accounted for when you compare VTSAX to any American Fund. There are now F shares available without loads, but I believe you need have an advisor purchase them for you.

Apart from the loads, the expense ratios are much more than index funds, many close to 1%. Expense ratios are accounted for in your comparison, but the fact remains that they are steep and not something most Bogleheads would pay. Cost matters and performance can come and go, but fund fees are forever. (Paraphrasing Jack Bogle here.)

We owned American Balanced Fund R-6 shares for a decade in a 401K with an ER of .28%. It was a solid performer and a inexpensive way to hold bonds in an employer plan.

So they are good funds. Jack Bogle and Larry Swedroe have both said positive things about Capitol Group. It's just that they are expensive; most have loads and require an advisory relationship.
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Re: Think no one can beat the index?

Post by bampf »

southwest_stacker wrote: Sat Aug 08, 2020 11:06 am
cheese_breath wrote: Sat Aug 08, 2020 10:53 am
southwest_stacker wrote: Sat Aug 08, 2020 10:48 am ... I am meeting with the guy who gave me this in a couple days. Nice guy, family friend, and there is zero chance I am buying but rather than just telling him no I would like some points to make about it.
You'll be making a mistake. Nice guy, family friend, or whatever else he's still a salesman. He's already heard whatever points you think you can make and has prepared counter arguments to them.
I know he is a salesman and I am not going to be sold. I am not worried about that. He was friends with with my parents who are now deceased. He did manage their retirement portfolio but when they passed I transferred it all to vanguard. I have hired him on a fee only basis to do some early retirement projections for me. I made it very clear to him that is all I wanted and I was managing my own accounts and wasn’t using his other services. My parents didn’t understand investing and didn’t want to. I frequently looked at their stuff with him and think he was doing an ok job for them for what it was.

I fully realize at the end of the day he is still going to be selling managed funds and I am still going to be a believer in indexing but I am actually looking forward to having a little debate about it even though it won’t change anything.
You are literally wasting his time because you want a debate. He is selling things. You are making him invest time and effort to sell something you have no intention of buying. That seems less than optimal from a relationship point of view.
Monsterflockster
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Re: Think no one can beat the index?

Post by Monsterflockster »

Many “beat the market,” they just don’t do it regularly. Taking a 30-40 year sample likely it’s only a few, who likely has some kind of inside knowledge.
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"The Arithmetic of Active Management"

Post by Taylor Larimore »

Anon9001 wrote: Sat Aug 08, 2020 11:09 am China A shares indexes are complete trash in comparison to active funds.
Anon9001:

Read this article by Nobel Laureate, Wm. Sharpe:The Arithmetic of Active Management

Best wishes.
Taylor
Jack Bogle's Words of Wisdom (2005): "Of the 355 equity funds in 1970, fully 233 of those funds have gone out of business. Only 24 outpaced the market by more than 1% a year. These are terrible odds." -- "I favor the all-market index index fund as the best choice for most investors."
"Simplicity is the master key to financial success." -- Jack Bogle
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southwest_stacker
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Re: Think no one can beat the index?

Post by southwest_stacker »

bampf wrote: Sat Aug 08, 2020 11:17 am
southwest_stacker wrote: Sat Aug 08, 2020 11:06 am
cheese_breath wrote: Sat Aug 08, 2020 10:53 am
southwest_stacker wrote: Sat Aug 08, 2020 10:48 am ... I am meeting with the guy who gave me this in a couple days. Nice guy, family friend, and there is zero chance I am buying but rather than just telling him no I would like some points to make about it.
You'll be making a mistake. Nice guy, family friend, or whatever else he's still a salesman. He's already heard whatever points you think you can make and has prepared counter arguments to them.
I know he is a salesman and I am not going to be sold. I am not worried about that. He was friends with with my parents who are now deceased. He did manage their retirement portfolio but when they passed I transferred it all to vanguard. I have hired him on a fee only basis to do some early retirement projections for me. I made it very clear to him that is all I wanted and I was managing my own accounts and wasn’t using his other services. My parents didn’t understand investing and didn’t want to. I frequently looked at their stuff with him and think he was doing an ok job for them for what it was.

I fully realize at the end of the day he is still going to be selling managed funds and I am still going to be a believer in indexing but I am actually looking forward to having a little debate about it even though it won’t change anything.
You are literally wasting his time because you want a debate. He is selling things. You are making him invest time and effort to sell something you have no intention of buying. That seems less than optimal from a relationship point of view.
Not really. I didn’t ask him to pitch this stuff to me. When he brings it up I will say I am not interested. If he says nothing more I am perfectly ok leaving it at that. If he asks why then game on.
bornloopy
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Re: Think no one can beat the index?

Post by bornloopy »

southwest_stacker wrote: Sat Aug 08, 2020 10:48 am I am not advocating for this I strongly believe in index investing and will continue to do so but this was given to me this week.

https://www.capitalgroup.com/advisor/pd ... 619801.pdf

It is clearly sales propaganda for American funds but I would like some commentary on it.

Doing a little research it looks like many of the American funds got a leg up early on and thus have stayed ahead over the long haul but looking at a more recent history few if any of the American funds have outperformed VTSAX over the past 1,3,5,10 or 15 years.

I am meeting with the guy who gave me this in a couple days. Nice guy, family friend, and there is zero chance I am buying but rather than just telling him no I would like some points to make about it.
I posted the stuff I paste below in another thread today but I am chiming in to show you I am living proof of beating the index. 200% returns on tax deferred accounts and 600% on margin account.

You can beat the market on your own without needing to pay someone to do it.

Since oct 2019 i began active investing. Prior to that, buy and hold sp500 only. Please keep in mind I am only 30 and began my HSA, IRA, 401k only in second half of 2017. My 457b began in 2018.

As you view my returns please note that at no given time did I experience a drawdown in any account, below my contribution amounts and thus never had drawdowns anywhere close to what a 60/40 or 100% sp500 fund did in the March crash.

https://i.imgur.com/ujVuNCR.jpg 401k

https://i.imgur.com/FCQgMB2.jpg individual fidelity account, taxable. I started with 70k of my own fund in october 2019. And got 200% returns by April 2020. See that it was transferred out to tdameritrade in april.

https://i.imgur.com/UHaJ5BV.jpg tdameritrade, (portfolio margin account) after transferring it all from fidelity to get access to futures in april. See I have more than doubled THAT since april. So my taxable funds overall have returned 600% since october 2019

https://i.imgur.com/2v41nD3.jpg All existing tax deferred accounts graph - see where taxable account was moved out to tdameritrade in april. 250k amount.

https://i.imgur.com/q7Caxm2.jpg 457b acct. please note this acct is mutual fund only, so not like I can trade any stock. I was very good at timing the market moving the funds in and out of money market/stocks. As my return at 30% outclasses the sp500 YTD.

https://i.imgur.com/cMzSrRi.jpg All existing tax deferred account returns overall, in fidelity

https://i.imgur.com/NtClQQs.jpg HSA

https://i.imgur.com/MituQs3.jpg IRA
illumination
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Re: Think no one can beat the index?

Post by illumination »

It's sort of like saying you can't pick a stock that outperforms the index, of course you can. Compare something like Tesla or Netflix stock to any other fund in the same era. But if you're only looking backwards, how do you know that means the same stock or the same fund manager continues to outperform?

Warren Buffett has been crowned since forever as the "world's greatest investor", and if you compared Berkshire on a long enough time line, it has handily outperformed something like the S&P500 by a mile. But the last 15 years or so, the index has beaten him. How do you know these funds managers aren't the next Buffett coming up on a long period of underperformance?

Also, some of the funds listed have been around 85 years. I absolutely think generations ago, it was "easier" for a fund to outperform something like an index because only a small amount of individuals with deep pockets could compile data and they could exploit those inefficiencies. And what would be considered insider trading today was far more lax back then. So you can rack up decades of outperformance to where it would take a really long time for an index to ever catch up if you start the dates from the fund's inception.

I also noticed that the chart had this disclaimer, which I don't fully understand but sounds like it's "juicing" the returns they are showing.
Time-weighted average annual excess return across these 18 equity-focused American Funds. The equal-weighted average annual excess return is 1.57%. The time-weighted average gives greater emphasis to those funds that have been in existence longer. For example, this means that the 1.3% annualized difference between The Investment Company of America and its benchmark is given proportionally greater weighting in alignment with its more than 85 years in existence when calculating the average across all 18 funds."
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Re: Think no one can beat the index?

Post by bottlecap »

We’ve all been there before. You think it’s going to feel good displaying and exercising your knowledge and scoring some points for right and justice.

You won’t and it won’t feel good. You will be talking to a doorknob. He will simply point to American Funds' returns and say, “We have beaten the index".

He's been trained to repeat talking points, like a politician. You will never convince a salesman or a politician of another point of view because they get paid to take a certain position and not think it’s wrong. Even if they know it’s likely not right.

Have fun,

JT
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dziuniek
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Re: Think no one can beat the index?

Post by dziuniek »

I am beating SP by quite a bit this year. Want me to run your money? :twisted: :twisted: :twisted:

+ 9.6% this year. 50/50 portfolio. :)

Sometimes you get lucky.
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cheese_breath
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Re: Think no one can beat the index?

Post by cheese_breath »

Jags4186 wrote: Sat Aug 08, 2020 11:02 am
cheese_breath wrote: Sat Aug 08, 2020 10:53 am
southwest_stacker wrote: Sat Aug 08, 2020 10:48 am ... I am meeting with the guy who gave me this in a couple days. Nice guy, family friend, and there is zero chance I am buying but rather than just telling him no I would like some points to make about it.
You'll be making a mistake. Nice guy, family friend, or whatever else he's still a salesman. He's already heard whatever points you think you can make and has prepared counter arguments to them.
Personally, I’ve never heard an effective counter argument to “no.”
How many used car salesmen have you met? Just like them, a persistent salesman will keep chipping away until you actually walk out the door. And it might not stop if they have your phone number. And then don't you feel the least bit guilty for not at least listening to a good friend who's going to so much effort to 'try to help you'?
The surest way to know the future is when it becomes the past.
kimura king
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Re: Think no one can beat the index?

Post by kimura king »

Some actively managed funds can and do beat the index, even net of fees. But that is based on historical data, the future is unknown, and index funds are a more reliable bet than actively managed funds when you keep in mind "survivorship bias" and other factors. I like eliminate the risks involved with fees, active managers beating the index over my lifetime and simplicity.

American funds has some terrible funds, like all of their international mutual funds and a bond fund with an expense ratio around 0.5%. There would be absolutely no point investing in that. My employer, a small consulting firm, has a "simple ira" with a 3% company match at American Funds. All the funds have a 5.75% front load, they give our company "a deal" and we pay 3.5% front load. These are my the investments my wife and I have outside of our 3 fund portfolio's, I only invest with them to get the match and to have a tax deferred investment account. Here are two of their best offerings that have beat VTSAX.

Vanguard total stock market index (VTSAX).
YTD return = 2.06%
10 year return = 13.73%

Here are a couple of American Funds with good historical, and current returns.

American Funds - The Growth Fund of America (AGTHX).
YTD return = 13.61%
10 year return = 14.66%

American Funds - The New Economy Fund (ANEFX).
YTD = 12.97%
10 year return = 14.48%
iamblessed
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Re: Think no one can beat the index?

Post by iamblessed »

The fund I wanted to buy beats the SP 500 over 25 years. The fund has much less risk also. It would have killed me in taxes and fees.
So beating the 500 is not everything. At the time I wanted to buy this fund so bad.
https://oakmark.com/our-funds/oakmark-e ... nd-income/
finite_difference
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Re: Think no one can beat the index?

Post by finite_difference »

southwest_stacker wrote: Sat Aug 08, 2020 11:29 am
bampf wrote: Sat Aug 08, 2020 11:17 am
southwest_stacker wrote: Sat Aug 08, 2020 11:06 am
cheese_breath wrote: Sat Aug 08, 2020 10:53 am
southwest_stacker wrote: Sat Aug 08, 2020 10:48 am ... I am meeting with the guy who gave me this in a couple days. Nice guy, family friend, and there is zero chance I am buying but rather than just telling him no I would like some points to make about it.
You'll be making a mistake. Nice guy, family friend, or whatever else he's still a salesman. He's already heard whatever points you think you can make and has prepared counter arguments to them.
I know he is a salesman and I am not going to be sold. I am not worried about that. He was friends with with my parents who are now deceased. He did manage their retirement portfolio but when they passed I transferred it all to vanguard. I have hired him on a fee only basis to do some early retirement projections for me. I made it very clear to him that is all I wanted and I was managing my own accounts and wasn’t using his other services. My parents didn’t understand investing and didn’t want to. I frequently looked at their stuff with him and think he was doing an ok job for them for what it was.

I fully realize at the end of the day he is still going to be selling managed funds and I am still going to be a believer in indexing but I am actually looking forward to having a little debate about it even though it won’t change anything.
You are literally wasting his time because you want a debate. He is selling things. You are making him invest time and effort to sell something you have no intention of buying. That seems less than optimal from a relationship point of view.
Not really. I didn’t ask him to pitch this stuff to me. When he brings it up I will say I am not interested. If he says nothing more I am perfectly ok leaving it at that. If he asks why then game on.
For what it’s worth, I think you have the right attitude and would appreciate an update on how it goes. Debate and discussion are important and I don’t think it’s a waste of time. If a financial advisor really grokked John Bogle’s philosophy, that would change their approach forever. It’s their lack of understanding that prevents it. It might be unlikely that you are the catalyst but you never know. Debate is only a waste of time if neither participant cares about learning or the other side.
The most precious gift we can offer anyone is our attention. - Thich Nhat Hanh
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Re: Think no one can beat the index?

Post by KyleAAA »

I've never heard anybody make the claim that nobody can beat the index. That would be mathematically improbable, to say the least. You would expect some funds to beat the index over very long periods of time just based on chance alone.
bigfry
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Re: Think no one can beat the index?

Post by bigfry »

Of course it's possible to beat the index. I believe around 13% of actively managed funds outperform the market. However, these funds also carry higher expenses which will eat into your returns and you also need to find them which could prove difficult. I'm very happy investing into the S&P 500. It's considered the gold standard that majority of actively managed funds try to beat. Why try to beat the gold standard?
100% Total Stock Index | 6 Months Cash | No Debt
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cheese_breath
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Re: Think no one can beat the index?

Post by cheese_breath »

KyleAAA wrote: Sat Aug 08, 2020 12:32 pm I've never heard anybody make the claim that nobody can beat the index. That would be mathematically improbable, to say the least. You would expect some funds to beat the index over very long periods of time just based on chance alone.
While he didn't explicitly say it, Adam Bold sort of inferred it with his slogan, "if you have to be in the market you might as well be in the best funds.
The surest way to know the future is when it becomes the past.
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Re: Think no one can beat the index?

Post by nisiprius »

Jags4186 wrote: Sat Aug 08, 2020 11:02 am
cheese_breath wrote: Sat Aug 08, 2020 10:53 am
southwest_stacker wrote: Sat Aug 08, 2020 10:48 am ... I am meeting with the guy who gave me this in a couple days. Nice guy, family friend, and there is zero chance I am buying but rather than just telling him no I would like some points to make about it.
You'll be making a mistake. Nice guy, family friend, or whatever else he's still a salesman. He's already heard whatever points you think you can make and has prepared counter arguments to them.
Personally, I’ve never heard an effective counter argument to “no.”
You need to say it seven times. I once heard someone assert that salespeople are literally trained to count, and don't give up until they have heard seven "noes." He suggested "Just say 'no, no, no, no, no, no, no.' Then they've got their 'seven noes' and they will leave off." I've literally tried this twice and it worked both times--the salesperson broke off. But that felt too weird and smartypants, so since then I've simply tried beginning every sentence with a single "no," politely.

"So may I at least send you our latest research report?"
"No, thank you, I probably wouldn't get around to read it," etc.
Last edited by nisiprius on Sat Aug 08, 2020 12:43 pm, edited 1 time in total.
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Re: Think no one can beat the index?

Post by statefan03 »

The PDF is making unfair comparisons. As an example, it's comparing GFA, a growth fund, to the S&P 500. Of course it wins because Growth has dominated. If you compare it to Vanguard's or Schwab's Growth funds which track the Russell 1000 Growth index, it underperforms.

https://www.portfoliovisualizer.com/bac ... ion3_3=100
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Re: Think no one can beat the index?

Post by nisiprius »

southwest_stacker wrote: Sat Aug 08, 2020 10:48 am...I am meeting with the guy who gave me this in a couple days. Nice guy, family friend, and there is zero chance I am buying but rather than just telling him no I would like some points to make about it...
Think twice about testing his irresistible sales force against your immovable sales resistance. Salespeople are really good at their job.

"There ain't a horse that cain't be rode, but there ain't a rider who cain't the throwed."

By saying "I would like some points to make about it" you are already in trouble. Salespeople like to talk you into believing that you have agreed to a game. The terms of the game are that if you can't convince them, you are obligated to buy what they are selling. Besides, they've spent all this time and done all this work preparing their presentation for you, it's only fair that you buy something.

I suggest the formula "I have made my decision." You can prefix it with "Thank you very much, but I have made my decision." Or "You make some good points, but I have made my decision." Or "You might be right and I might be an idiot but, nevertheless, I have made my decision and my decision is to stick with index funds." Try to do it over the phone when you call to cancel the meeting, try not to get within his "reality distortion field." Say it would not be fair to put him to all the time and trouble when you have already made your decision.

Being a family friend makes it much worse. It really traps you when you are in some grey area where don't feel free to make decisions purely in your own self-interest without factoring in his feelings, the feelings of other people in your family, etc.

If you want to, cancel the meeting with this guy. Then go look into American Funds' offerings for yourself without an advisor looking over your shoulder. If you like what you see, buy them--at a brokerage, where you aren't beholden to anybody and if you change your mind you can just sell them again without worrying about hurt feelings.

I am not sure what the current status of sales loads are with American funds, and I don't feel like researching it for myself. Don't buy any fund if you have to pay a sales load... but I'm sure you know that.
Last edited by nisiprius on Sat Aug 08, 2020 1:00 pm, edited 2 times in total.
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Re: Think no one can beat the index?

Post by burritoLover »

Just tell him there's no way you are buying anything but if he wants to come and practice his sales pitch on you, you don't mind. At least then he knows where you are coming from.
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Re: Think no one can beat the index?

Post by cheese_breath »

There are fly fishermen, and there are fishermen who sit in the boat all day. There are fish down there, and they're willing to wait for one to take the bait. The good family friend salesmen are like boat fishermen. They just put out the bait and wait for the fish. OP is nibbling at the bait now, maybe he's just waiting for the right time to set the hook.
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Re: Think no one can beat the index?

Post by Watty »

“It is difficult to get a man to understand something, when his salary depends on his not understanding it.”

Upton Sinclair
You will not be able to change his mind so don't even try.

A huge factor to consider is that when you see that their funds have good performance over some time period like 15 year is that 15 years ago they likely had a lot more funds but the quietly shut down the ones that did not do well. This is called "survivorship bias"(Google this). Some mutual fund companies will do this intentionally by creating a lot of small incubator funds that they let run for a few years then shut the poor performing ones down,

In fairness just by random chance about half people will beat a comparable index fund before expenses though.

The two keys to this are;
1) "Comparable" - the market is near an all time high so someone who invested in risky stocks is likely ahead of something like a total market index fund. In a bear market those investments would be expected to do worse.

2) "before expenses" Someone needs to pay all the salaries, trading costs, and additional taxes when you are paying someone to manage your investments.
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Re: Think no one can beat the index?

Post by HomerJ »

southwest_stacker wrote: Sat Aug 08, 2020 10:48 am I am not advocating for this I strongly believe in index investing and will continue to do so but this was given to me this week.

https://www.capitalgroup.com/advisor/pd ... 619801.pdf

It is clearly sales propaganda for American funds but I would like some commentary on it.

Doing a little research it looks like many of the American funds got a leg up early on and thus have stayed ahead over the long haul but looking at a more recent history few if any of the American funds have outperformed VTSAX over the past 1,3,5,10 or 15 years.

I am meeting with the guy who gave me this in a couple days. Nice guy, family friend, and there is zero chance I am buying but rather than just telling him no I would like some points to make about it.
We never said "No one can beat the index".

Some funds beat the index, but you don't know WHICH funds ahead of time. And even more damning, it's not the SAME funds in all 5-year or 10-year periods.

So you can index, and beat 80% of active funds over the next 10 years, or you can try to pick which funds will beat the index... But it's unlikely to be any of the funds that beat the index in the PAST ten years, so you can't just pick those and win.
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Re: Think no one can beat the index?

Post by mrspock »

southwest_stacker wrote: Sat Aug 08, 2020 10:48 am I am not advocating for this I strongly believe in index investing and will continue to do so but this was given to me this week.

https://www.capitalgroup.com/advisor/pd ... 619801.pdf

It is clearly sales propaganda for American funds but I would like some commentary on it.

Doing a little research it looks like many of the American funds got a leg up early on and thus have stayed ahead over the long haul but looking at a more recent history few if any of the American funds have outperformed VTSAX over the past 1,3,5,10 or 15 years.

I am meeting with the guy who gave me this in a couple days. Nice guy, family friend, and there is zero chance I am buying but rather than just telling him no I would like some points to make about it.
When I see stuff like this, I'm like great! Since the the advisor or MF company is so confident, I'll make them a sweet deal: Guarantee me just the CAGR of the S&P 500 plus 2% after taxes and all fees (I would even accept 1.5%), over any 5 year period and I'll hand them every dime after that.

Oddly, no takers on my offer...ever, the confidence evaporates and excuses begin to flow.

------

On a more serious note, American Fund is just S&P500 w/ heavy QQQ (tech) tilt, there's no magic here. Buy yourself some QQQ and save yourself the trouble.
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Re: Think no one can beat the index?

Post by Northern Flicker »

First, show us an example where American Funds published and committed to which benchmark index they would try to beat at the start of the evaluation period, and which they beat over the evaluation period by investing exclusively in stocks belonging to that index. Then we can discuss the notion that the fund beat its index.

American Funds is one of the better active managers around. If you can get their funds without an initial load, and at a reasonable expense ratio, a number of them are good products if you want active management. This usually means getting them through a 401K or other similar plan, as advisors generally charge a load. If I were to hold a traditional actively managed fund, Vanguard, American Funds, DFA, and T. Rowe Price are probably the fund providers I most would trust to do a reasonable job and consistently stick to their strategy, though some claim that DFA funds are not actively managed.

But active managers can play all sorts of marketing games that are nothing more than encouraging performance chasing. Examples:

1. Promoting their skill by showing the performance of their growth funds over periods where growth overperformed, or of their value funds over periods where value overperformed.

2. Promoting their skill by showing performance of portfolios that include small caps in comparison to the S&P500 over periods small caps overperformed.

3. Painting the target on the tree after the arrow is shot. Suppose a fund holds 90% developed markets non-US equities and 10% emerging markets equities. The fund will beat the developed market indices when EM outperforms DM, and beat the total int'l indices when DM outperforms EM. They can trot out the index they beat in marketing materials.

I think it is best to maintain a top-down approach to asset allocation. Design an asset allocation using general asset classes, not fund products, then select fund products to implement each asset class. If an active fund is managed with discipline so that it consistently is an implementation of an asset class in one's asset allocation, and costs are reasonable, it is not unreasonable to use the product to implement the asset class.
Last edited by Northern Flicker on Sat Aug 08, 2020 5:18 pm, edited 1 time in total.
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Re: Think no one can beat the index?

Post by Savermom »

I would not meet w the salesman. You can do your own retirement projections w a spreadsheet or online calculator. It is best to not meet w him so that you can avoid the sales pitch and I would guess follow up calls? I have never had a financial advisor, but I have met some through work. They are salespeople.
Last edited by Savermom on Sat Aug 08, 2020 3:34 pm, edited 1 time in total.
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Re: Think no one can beat the index?

Post by cheese_breath »

How did this discussion come about in the first place? Did he call you at home, meet at some community event, happen to run into each other on the street?
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Re: Think no one can beat the index?

Post by jebmke »

cheese_breath wrote: Sat Aug 08, 2020 1:01 pm There are fly fishermen, and there are fishermen who sit in the boat all day. There are fish down there, and they're willing to wait for one to take the bait. The good family friend salesmen are like boat fishermen. They just put out the bait and wait for the fish. OP is nibbling at the bait now, maybe he's just waiting for the right time to set the hook.
I seem to recall we have had many threads from people asking how to quit an advisor when it is a friend of the family. How to do it tactfully.

My policy is to not mix personal finance with family or friends since I'd generally like to keep them and most of the time, getting into financial discussions or giving advice has more downside than upside.
When you discover that you are riding a dead horse, the best strategy is to dismount.
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Re: Think no one can beat the index?

Post by cheese_breath »

jebmke wrote: Sat Aug 08, 2020 3:20 pm
cheese_breath wrote: Sat Aug 08, 2020 1:01 pm There are fly fishermen, and there are fishermen who sit in the boat all day. There are fish down there, and they're willing to wait for one to take the bait. The good family friend salesmen are like boat fishermen. They just put out the bait and wait for the fish. OP is nibbling at the bait now, maybe he's just waiting for the right time to set the hook.
I seem to recall we have had many threads from people asking how to quit an advisor when it is a friend of the family. How to do it tactfully.

My policy is to not mix personal finance with family or friends since I'd generally like to keep them and most of the time, getting into financial discussions or giving advice has more downside than upside.
You mean like when the good friend starts ignoring you because he finally realizes you won't sign up with him?
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Re: Think no one can beat the index?

Post by oldcomputerguy »

southwest_stacker wrote: Sat Aug 08, 2020 10:48 am I am meeting with the guy who gave me this in a couple days. Nice guy, family friend, and there is zero chance I am buying but rather than just telling him no I would like some points to make about it.
Ask him to give you a written guarantee that, if the investments he proposes putting your money don't beat the indexes after expenses each and every year, will give you the difference out of his own pocket.
"I’ve come around to this: If you’re dumb, surround yourself with smart people; and if you’re smart, surround yourself with smart people who disagree with you." (Aaron Sorkin)
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Re: Think no one can beat the index?

Post by Carguy85 »

What a bizarre way to spend one’s free time given you sound like you know better than to believe what he’s selling. What’s next, a heavily discounted vacation where all you have to do to qualify is listen to a sales pitch for a timeshare when you know better than to buy one?? :confused Anyhow, good luck. Hopefully he is willing to take no for an answer without too much hassle.
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Re: Think no one can beat the index?

Post by bondsr4me »

plenty of investors/advisors can beat their index....they just can’t do it year in and year out..that’s the real issue.
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Re: Think no one can beat the index?

Post by tibbitts »

Why would you title this "Think no one can beat the index?" Seriously? Nobody would say that.
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Re: Think no one can beat the index?

Post by southwest_stacker »

tibbitts wrote: Sat Aug 08, 2020 4:31 pm Why would you title this "Think no one can beat the index?" Seriously? Nobody would say that.
That was the title of the article he sent me.
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Re: Think no one can beat the index?

Post by southwest_stacker »

cheese_breath wrote: Sat Aug 08, 2020 3:20 pm How did this discussion come about in the first place? Did he call you at home, meet at some community event, happen to run into each other on the street?
He managed my mom’s accounts. She passed away in June. I have been working with him on getting everything transferred over to me. He asked me if I wanted to continue to use his services and I told him no but I would be willing to pay him for a few hours of his time to develop some projections.

I am in a fairly tricky situation. I inherited about 700k in IRA’s which must be depleted within ten years. Based on my current income all of this IRA money would be taxed at 39%. My strategy, and what I asked him to run the feasibility on is me working five more years and then retiring. Live off the inherited IRA’s the next five years (taking them out at a lower tax rate), then living off my taxable investments until I reach retirement.
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Re: Think no one can beat the index?

Post by Silverado »

bornloopy wrote: Sat Aug 08, 2020 11:38 am
southwest_stacker wrote: Sat Aug 08, 2020 10:48 am I am not advocating for this I strongly believe in index investing and will continue to do so but this was given to me this week.

https://www.capitalgroup.com/advisor/pd ... 619801.pdf

It is clearly sales propaganda for American funds but I would like some commentary on it.

Doing a little research it looks like many of the American funds got a leg up early on and thus have stayed ahead over the long haul but looking at a more recent history few if any of the American funds have outperformed VTSAX over the past 1,3,5,10 or 15 years.

I am meeting with the guy who gave me this in a couple days. Nice guy, family friend, and there is zero chance I am buying but rather than just telling him no I would like some points to make about it.
I posted the stuff I paste below in another thread today but I am chiming in to show you I am living proof of beating the index. 200% returns on tax deferred accounts and 600% on margin account.

You can beat the market on your own without needing to pay someone to do it.

Since oct 2019 i began active investing. Prior to that, buy and hold sp500 only. Please keep in mind I am only 30 and began my HSA, IRA, 401k only in second half of 2017. My 457b began in 2018.

As you view my returns please note that at no given time did I experience a drawdown in any account, below my contribution amounts and thus never had drawdowns anywhere close to what a 60/40 or 100% sp500 fund did in the March crash.

https://i.imgur.com/ujVuNCR.jpg 401k

https://i.imgur.com/FCQgMB2.jpg individual fidelity account, taxable. I started with 70k of my own fund in october 2019. And got 200% returns by April 2020. See that it was transferred out to tdameritrade in april.

https://i.imgur.com/UHaJ5BV.jpg tdameritrade, (portfolio margin account) after transferring it all from fidelity to get access to futures in april. See I have more than doubled THAT since april. So my taxable funds overall have returned 600% since october 2019

https://i.imgur.com/2v41nD3.jpg All existing tax deferred accounts graph - see where taxable account was moved out to tdameritrade in april. 250k amount.

https://i.imgur.com/q7Caxm2.jpg 457b acct. please note this acct is mutual fund only, so not like I can trade any stock. I was very good at timing the market moving the funds in and out of money market/stocks. As my return at 30% outclasses the sp500 YTD.

https://i.imgur.com/cMzSrRi.jpg All existing tax deferred account returns overall, in fidelity

https://i.imgur.com/NtClQQs.jpg HSA

https://i.imgur.com/MituQs3.jpg IRA
So, you have a ten month track record of success? Very very small number of people would care about that.
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Re: Think no one can beat the index?

Post by tibbitts »

southwest_stacker wrote: Sat Aug 08, 2020 5:09 pm
cheese_breath wrote: Sat Aug 08, 2020 3:20 pm How did this discussion come about in the first place? Did he call you at home, meet at some community event, happen to run into each other on the street?
He managed my mom’s accounts. She passed away in June. I have been working with him on getting everything transferred over to me. He asked me if I wanted to continue to use his services and I told him no but I would be willing to pay him for a few hours of his time to develop some projections.

I am in a fairly tricky situation. I inherited about 700k in IRA’s which must be depleted within ten years. Based on my current income all of this IRA money would be taxed at 39%. My strategy, and what I asked him to run the feasibility on is me working five more years and then retiring. Live off the inherited IRA’s the next five years (taking them out at a lower tax rate), then living off my taxable investments until I reach retirement.
Is the 39% federal, state, city...? What state? You might want to start a separate thread on that - it's a more interesting question than what this thread is about.
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Re: Think no one can beat the index?

Post by bornloopy »

Silverado wrote: Sat Aug 08, 2020 5:10 pm
bornloopy wrote: Sat Aug 08, 2020 11:38 am
southwest_stacker wrote: Sat Aug 08, 2020 10:48 am I am not advocating for this I strongly believe in index investing and will continue to do so but this was given to me this week.

https://www.capitalgroup.com/advisor/pd ... 619801.pdf

It is clearly sales propaganda for American funds but I would like some commentary on it.

Doing a little research it looks like many of the American funds got a leg up early on and thus have stayed ahead over the long haul but looking at a more recent history few if any of the American funds have outperformed VTSAX over the past 1,3,5,10 or 15 years.

I am meeting with the guy who gave me this in a couple days. Nice guy, family friend, and there is zero chance I am buying but rather than just telling him no I would like some points to make about it.
I posted the stuff I paste below in another thread today but I am chiming in to show you I am living proof of beating the index. 200% returns on tax deferred accounts and 600% on margin account.

You can beat the market on your own without needing to pay someone to do it.

Since oct 2019 i began active investing. Prior to that, buy and hold sp500 only. Please keep in mind I am only 30 and began my HSA, IRA, 401k only in second half of 2017. My 457b began in 2018.

As you view my returns please note that at no given time did I experience a drawdown in any account, below my contribution amounts and thus never had drawdowns anywhere close to what a 60/40 or 100% sp500 fund did in the March crash.

https://i.imgur.com/ujVuNCR.jpg 401k

https://i.imgur.com/FCQgMB2.jpg individual fidelity account, taxable. I started with 70k of my own fund in october 2019. And got 200% returns by April 2020. See that it was transferred out to tdameritrade in april.

https://i.imgur.com/UHaJ5BV.jpg tdameritrade, (portfolio margin account) after transferring it all from fidelity to get access to futures in april. See I have more than doubled THAT since april. So my taxable funds overall have returned 600% since october 2019

https://i.imgur.com/2v41nD3.jpg All existing tax deferred accounts graph - see where taxable account was moved out to tdameritrade in april. 250k amount.

https://i.imgur.com/q7Caxm2.jpg 457b acct. please note this acct is mutual fund only, so not like I can trade any stock. I was very good at timing the market moving the funds in and out of money market/stocks. As my return at 30% outclasses the sp500 YTD.

https://i.imgur.com/cMzSrRi.jpg All existing tax deferred account returns overall, in fidelity

https://i.imgur.com/NtClQQs.jpg HSA

https://i.imgur.com/MituQs3.jpg IRA
So, you have a ten month track record of success? Very very small number of people would care about that.
Having gone from 200K to ~860K over 10 months, with never having drawdowns anywhere close to what a 60/40 or 100% sp500 fund did in the March crash....and trading during the most difficult periods an investor could ever encounter...and having more percentage of successful trades than losing ones (I.e, my returns are not from 1 lucky all in play)....means nothing?

At the very least, 200K to 860K is extremely life changing for anyone; especially being young at 30; versus if I had not done this and stayed with buy and hold only. As compound interest will continue over the years and this will permit me to retire decades earlier than otherwise. I am not saying I can maintain 200+ percent returns ever again over a 10 month time span, but that having such a big lead means I've definitely won against indexing in the long run with this massive head start.
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