Portfolio for 13 year old using Oakmark funds

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Dadarkar
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Portfolio for 13 year old using Oakmark funds

Post by Dadarkar » Sat Apr 17, 2010 10:42 am

Just finished reading another excellent book by Bill Bernstein "The Investor manifesto". In this book he suggests to teach your children to invest, by setting up a portfolio with two or three mutual funds in each child's name. This will teach him/her how to file their account statements and review the account on line. He suggests to use "Oakmark family" which offers funds with $1,000 minimum. Does anybody have experience with Oakmark funds? What 2-3 funds would you recommend from this family? Should I set up this account as UGMA/UTMA account? Any other suggestions?

Beagler
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Post by Beagler » Sat Apr 17, 2010 10:45 am

Would you refresh my memory on which page he recommends that family of funds? I read the book right after it was released, and his suggestion of the Oakmark family didn't stick with me.
“The only place where success come before work is in the dictionary.” Abraham Lincoln. This post does not provide advice for specific individual situations and should not be construed as doing so.

gw
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Post by gw » Sat Apr 17, 2010 10:55 am

Yikes! Oakmark's expenses are almost ten times higher than inexpensive index funds like VTSMX. I'd think that investing in Oakmark funds would teach your children extremely bad habits (to wit, ignoring the hugely destructive consequences of holding high-cost funds). There must be reasonably-priced funds out there somewhere that allow low initial investments.

Shame on Bernstein if he recommended those high-cost funds.

gw
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Post by gw » Sat Apr 17, 2010 11:16 am

Beagler wrote:Would you refresh my memory on which page he recommends that family of funds? I read the book right after it was released, and his suggestion of the Oakmark family didn't stick with me.
Indeed, he mentions Oakmark on p. 174 as an option for children's funds due to low minimums.

http://books.google.com/books?id=k59JxC ... rk&f=false

It's shameful that Bernstein would recommend teaching your children that high costs are okay. How is it that his book has a whole section on Jack Bogle's index fund revolution, yet he still seems to have missed Bogle's core insight---that active management (c.f. Oakmark) can't beat low-fee index funds?

Maybe giving your children Bogle's "Little Book of Common Sense Investing" would be a better investment:

http://books.google.com/books?id=eiPO0b ... &q&f=false

Beagler
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Post by Beagler » Sat Apr 17, 2010 11:20 am

Thanks for the link.

I'd prefer to see young kids start with STAR Fund, which also has a $1K minimum. https://personal.vanguard.com/us/funds/ ... st=tab%3A3
“The only place where success come before work is in the dictionary.” Abraham Lincoln. This post does not provide advice for specific individual situations and should not be construed as doing so.

Gekko
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Post by Gekko » Sat Apr 17, 2010 11:22 am

IMO - i would use VG STAR Fund for this purpose.

pshonore
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Post by pshonore » Sat Apr 17, 2010 11:35 am

Growth of 10K since 1995:

OAKBX - $49023

VTSMX - $29000 (approx)

Of course OAKBX is a balanced fund (roughly 50/50) so this is not a fair comparison but it also outperformed Wellington, Wellesley, and Windsor over the same 15 yr period.

gw
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Post by gw » Sat Apr 17, 2010 11:51 am

Beagler wrote: I'd prefer to see young kids start with STAR Fund, which also has a $1K minimum. https://personal.vanguard.com/us/funds/ ... st=tab%3A3
But STAR also has a $20/year fee for accounts under $10K, so the effective expense ratio on a $1000 account is 2.34% (!!).

https://personal.vanguard.com/us/Litera ... main=false

How about Schwab Total Stock Market Fund?

http://www.schwab.com/public/schwab/res ... m_nm=SWTSX

It has a very good expense ratio of 0.09%, and only a $100 minimum investment. I don't know anything else about the fund except that it's a passively managed index, but it looks pretty good. I guess there's a $1000 minimum to open an account at Schwab from which to buy the fund, but that's at least as good as STAR or Oakmark, and maybe you would keep other funds there for yourself, or you could look into a "custodial" account, which has a $100 minimum.

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anthau
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Post by anthau » Sat Apr 17, 2010 11:59 am

Schwab's index funds have $100 minimums and competitive expense ratios, though less comprehensive than Vanguard's (and, of course, more likely to change in the future).
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livesoft
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Post by livesoft » Sat Apr 17, 2010 12:15 pm

My teenager earned about $500 last year. She opened up a Roth IRA with a sub-$500 deposit at Fidelity. She walked into the Fidelity office about a block from her work and they did all the forms for her.

She can buy one of those ETFs without commission.

My advice is to understand the principles that authors of books are trying to convey. One probably should not follow their advice literally. If Bill Bernstein had written that you should go jump in the lake, would you go jump in the lake? I'm sounding like my dad now.


I think you need to be 18 to have your own account, so a UTMA account would be necessary for minors. Do you really believe that a kid is going to be interested in statements for an account that you are not going to let them spend?
Last edited by livesoft on Sat Apr 17, 2010 12:36 pm, edited 1 time in total.

nickel
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Post by nickel » Sat Apr 17, 2010 12:35 pm

I would second the recommendation for Schwab index funds if you're looking for low minimums.
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BachFan
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Post by BachFan » Sat Apr 17, 2010 8:05 pm

Last week I opened up a STAR account ($1,000) for a niece's Roth IRA, and the $20 annual fee was waived because we opted for on-line access for reports and other mailings. Why not see if the UGMA account would work the same way?

leonard
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Post by leonard » Sat Apr 17, 2010 9:16 pm

Buy an actively managed fund for a kid. Then, potentially lock them in to long term capital gains on a tax inefficient mutual fund?

Unless your goal is to get the kids bad investment decisions out of the way early, I don't think this is a good way to teach a kid about investing.
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beardsworth
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Re: Portfolio for 13 year old using Oakmark funds

Post by beardsworth » Sat Apr 17, 2010 10:40 pm

Dadarkar wrote: . . . [Bernstein] suggests to use "Oakmark family" which offers funds with $1,000 minimum. . . .
Without getting into the issue of whether the Oakmark funds are the right ones for your purposes, as compared to funds named by other posters here, the minimum to open an Oakmark account is further reduced to $500 for persons who also sign up for automatic investing of at least an additional $100 on a periodic basis (monthly or quarterly).

http://www.oakmark.com/faq.asp#minimum

Marc

fmoore
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STAR Fee

Post by fmoore » Sat Apr 17, 2010 11:10 pm

Beagler wrote: But STAR also has a $20/year fee for accounts under $10K, so the effective expense ratio on a $1000 account is 2.34% (!!).
This fee is waived if you sign up for electronic delivery of any account information.

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spam
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Post by spam » Sun Apr 18, 2010 4:39 am

I own these two Oakmark funds. OAKGX is the global fund and holds about half domestic stocks. OAKBX is their balanced fund which owns domestic stocks and about half bonds.

The flat line on the bottom is the tax efficient vanguard total stock market index.

Image

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lmpmd
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Post by lmpmd » Sun Apr 18, 2010 6:08 am

Isn't it considered best to compare a fund to some kind of benchmark fund? For example, to compare a fund A thats 100% equity to a fund B that's 40% equity (perhaps something a very risk averse person would choose) during a period where the stock market did fabulous would show fund B to be an inferior fund. But that would be an unfair comparison. So I'm not sure the VTSMX should be compared to the Oakmark OAKGX fund as that may not be a benchmark for the VTSMX fund.
Yahoo Finances lists exp ration for OAKGX as 1.23 and VTSMX as .18

Gekko
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Post by Gekko » Sun Apr 18, 2010 6:16 am

spam wrote:I own these two Oakmark funds. OAKGX is the global fund and holds about half domestic stocks. OAKBX is their balanced fund which owns domestic stocks and about half bonds.

The flat line on the bottom is the tax efficient vanguard total stock market index.

Image
past performance...

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Random Musings
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Post by Random Musings » Sun Apr 18, 2010 10:34 pm

Doesn't anyone own any of the crappy active funds out there? Especially with larger asset sizes?

With respect to OAKGX, about $2 billion in assets according to M*. Since 2004 thru first quarter 2010 (from M*), when asset size was more "meaningful" (versus $400MM in 2003 and $176MM in 2000), annualized returns versus benchmark was 8.18% verus 6.36%.

Same case for OAKBX - from 2004 thur first quarter 2010 - 7.66% versus 6.33% benchmark. Now has around $20 billion in asset size - around $3.7 billion in 2003 and $52 million in March 2000 link to report.

IMHO, the reality is that only a very small amount of investors held Oakmark funds during those years of glory (especially the 2000-2003 period). During that timeframe, I also believe that Oakmark had more exposure in mid- and small caps - which gives me some concerns that the benchmark is probably understated on the low side.

Nothing against Oakmark, but the real outperformance was captured when very few were in those funds. I swear all of their 2000-2003 long-term buy-and-holders post here. :roll:

RM

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Kenster1
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Post by Kenster1 » Mon Apr 19, 2010 11:53 am

I've been a long time investor in OAKBX and have mentioned it back in the M* Diehard days. That's because it was available in my 401k and I happened to like this value tilted balanced fund.

Anyways - it is still interesting as to why Bernstein recommended Oakmark considering his past lashing against actively-managed funds. I wonder why didn't he mention the VG STAR fund for $1,000 minimum? It might because it's not value-tilted. Remember that in the past before any value-tilted international index options were available -- he was willing to recommend actively-managed funds to get the international value tilt.

Many here tout the issues of chasing past performance -- don't you think Bernstein knows that? Could it be that depsite the fact that Oakmark is actively-managed, he believes that the value investing style (with lower minimums) trumps other options? That's my guess.

Schwab Traditional Index Funds also have incredibly low minimums of $100 -- but no value tilted option. But since Bernstein seems to like a value-tilt as that's what mentioned in his blurb about the Oakmark shop then Schwab also has the value-tilted Fundamental Index Funds for super low minimums as well. Not sure why he didn't mention these.
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