Luxury Index Funds

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Ron Scott
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Luxury Index Funds

Post by Ron Scott » Wed Nov 15, 2017 4:37 pm

You can run a classic 50-50 portfolio at Vanguard for an expense ratio of about 0.045%. Great deal.

But there are other ways to do the Boglehead thing at Vanguard and their competitors--still indexing of course, no crazy fund managers or the like--that will cost you 2.5X-3X or so more. And you're essentially paying for convenience; call them Luxury Index Funds.

Such funds combine stocks and bonds, all-in-one "fund of funds", and some will even alter the AA over time to match your psychological investing profile or some goal date you have in mind. Target date funds, etc. The costs vary: 0.12%-0.015% more or less, at Vanguard.

The difference between the DIY approach and many of these Luxury funds at Vanguard is about $1000 per million per year.

I do not see value in the Luxury funds. Maybe my needs are simple and I like to get my hands dirty. I pay for LOTS of services, probably too much for some I admit, and I certainly do not criticize those who pay for this stuff.

I'd like to hear from people who have some of these funds and can essentially DIY to similar specs. Do you feel you're getting good value?
Retirement is a game best played by those prepared for more volatility in the future than has been seen in the past. Preparing for financial challenges is more fruitful than trying to predict them.

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Sandtrap
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Location: Hawaii😀 Northern AZ.😳 Retired.

Re: Luxury Index Funds

Post by Sandtrap » Wed Nov 15, 2017 4:43 pm

I have Life Strategy Income Fund and Balanced Index Fund as part of my "post Me" plan so that DW or my successor trustee will have an easier time continuing what I set up and following my IPS Statement. My overall ER this year is .08 and that's fine with me for peace of mind and ease of management. I don't consider them "luxury funds'. Works for me. But not for everyone. YMMV.
j :D

alex_686
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Re: Luxury Index Funds

Post by alex_686 » Wed Nov 15, 2017 4:48 pm

Here is a question. How good - in the technical sense - are creating the best AA for yourself? How discipline are you in rebalancing your portfolio? I am very good at both so I DIY. Most people are not. For them "Luxury" - and I don't consider them "Luxury" - are well worth it.

venkman
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Re: Luxury Index Funds

Post by venkman » Thu Nov 16, 2017 12:03 am

I agree that it's silly to spend extra money when you don't have to, but 0.15% is probably not enough to tip the scales if one prefers the higher-ER fund.

Your overall return in a given year could easily vary by 15 basis points based entirely on whatever date you happen to pick for rebalancing (or, if you use ETF's, what TIME you pick for rebalancing.)

ThrustVectoring
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Re: Luxury Index Funds

Post by ThrustVectoring » Thu Nov 16, 2017 1:01 pm

I don't use them personally but I recommend them for my girlfriend and people who ask very basic questions and want to do the right thing.

Doing the wrong thing is far more expensive than the fees, and a lot of people I don't expect would do the right thing without using these funds.

Elbowman
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Re: Luxury Index Funds

Post by Elbowman » Thu Nov 16, 2017 2:25 pm

ThrustVectoring wrote:
Thu Nov 16, 2017 1:01 pm
Doing the wrong thing is far more expensive than the fees, and a lot of people I don't expect would do the right thing without using these funds.
I agree. Too many people, on this forum even, treat the possibility of a future behavioral mistake as some true or false value that they need to guess ahead of time. I think it is more valuable to treat it as a probability, and it would be an interesting analysis to take different behavioral mistakes (selling low, not rebalancing, etc.) and see how much you need to reduce that probability to make 0.1% additional cost worth it.

randomguy
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Re: Luxury Index Funds

Post by randomguy » Thu Nov 16, 2017 5:14 pm

Elbowman wrote:
Thu Nov 16, 2017 2:25 pm
ThrustVectoring wrote:
Thu Nov 16, 2017 1:01 pm
Doing the wrong thing is far more expensive than the fees, and a lot of people I don't expect would do the right thing without using these funds.
I agree. Too many people, on this forum even, treat the possibility of a future behavioral mistake as some true or false value that they need to guess ahead of time. I think it is more valuable to treat it as a probability, and it would be an interesting analysis to take different behavioral mistakes (selling low, not rebalancing, etc.) and see how much you need to reduce that probability to make 0.1% additional cost worth it.
Not reblancing is likely to give you higher returns:) Seriously things like rebalancing are going to be a win some lose some game when you compare daily rebalancing to quarterly/yearly/decadely. Where do you draw the line about paying more? What about paying an extra .25% so that betterment will charge for TLH and efficiently selling funds when needed? What about paying 1% for an advisor to do the same? People are going to have different opinions about that.

As always one man's luxury is another mans necessity and it can change over time.

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LadyGeek
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Re: Luxury Index Funds

Post by LadyGeek » Thu Nov 16, 2017 5:55 pm

This thread is now in the Investing - Theory, News & General forum (general question).
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Elbowman
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Re: Luxury Index Funds

Post by Elbowman » Thu Nov 16, 2017 5:57 pm

randomguy wrote:
Thu Nov 16, 2017 5:14 pm
Where do you draw the line about paying more?
I thought I was proposing an analysis that could help one make that decision...
Elbowman wrote:
Thu Nov 16, 2017 2:25 pm
it would be an interesting analysis to take different behavioral mistakes (selling low, not rebalancing, etc.) and see how much you need to reduce that probability to make 0.1% additional cost worth it.

delamer
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Re: Luxury Index Funds

Post by delamer » Thu Nov 16, 2017 6:06 pm

Has there been any analysis proving that investors are more likely to let all-in-one funds (Luxury Index funds) ride during market downturns than stock-only funds?

Silk McCue
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Re: Luxury Index Funds

Post by Silk McCue » Thu Nov 16, 2017 7:04 pm

I believe it is better for many to utilize a Low Rent Fund of Funds (I certainly would never call this a Luxury Fund as it appears to mock the insignificant additional expense (and those that pay it) to cover the slightly more administratively complex nature of the product). If you choose to implement a 3 or 4 fund/ETF equivalent it could be very easy for some to over analyze/stress over the machinations of the individual components of the investment rather than just enjoying the beauty of the time tested and proven solution which is best left alone in order to succeed. A set it and forget it product with auto re-balancing and an established glide path or fixed allocation limits decision points and may prevent unnecessary tinkering or even abandoning of a well thought through original decision. Our biggest enemy in investing can (and for many is) ourselves.

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Wildebeest
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Re: Luxury Index Funds

Post by Wildebeest » Thu Nov 16, 2017 8:20 pm

I have DISVX ( DFA small value international funds) and DEMSX (DFA Emerging Markets Small Cap) in my 401 K and I could not be happier than having a $ 5 K watch or $ 500 K really fancy watch on each wrist. Life is good. I do not check the time, and I do not care what the return on my investment is. I am just happy with what I have.

If there is going to be expose article in future pointing out that only idiots would buy these funds, I will happily ignore it . I will keep the funds till RMD will obliterate them. I bought them and I will hold them.
The Golden Rule: One should treat others as one would like others to treat oneself.

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TimeRunner
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Re: Luxury Index Funds

Post by TimeRunner » Thu Nov 16, 2017 8:30 pm

Wife uses Vanguard Target Retirement 2025 Fund in 401k as a relatively low-cost self-balancing no-hands-on choice. I don't know if I'd call it a luxury, but I suppose if you're counting pennies it is. I use Vanguard Total World ETF in TIRA, Roth, and Investment account. Own the world in one self-balancing FTSE Global All Cap Index ETF with no-cost auto-dividend reinvestment as an option at many brokerage houses (other than Vanguard). It's a luxury I'm happy to pay for. :beer
"...There're just so many summers, and just so many springs." -Don Henley "What'd ya expect in an opera, a happy ending?" -Bugs Bunny

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