VTSAX vs Higher gain funds?

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WhiteRabbit
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Joined: Tue Jul 24, 2018 7:44 am

VTSAX vs Higher gain funds?

Post by WhiteRabbit » Fri Feb 14, 2020 2:10 pm

I'm sure this has been covered, so feel free to link to threads that cover it.

Most of my funds are invested in VTSAX because that seems to be the most popular choice here & other forums. But, when I look over Vanguard's list of funds I see others that have performed better over all the time frames listed (1,3,5,& 10 years).

"Since Inception" shows VTSAX has slightly outperformed VIGAX.

But when I placed VTSAX, VIGAX, and VITAX (I realize it's a sector fund, but wanted to compare it too long term on the chart) on a Yahoo Finance chart using 2004 as the start date (VITAX's inception) the graphs showed drastic long term results between VTSAX & VIGAX.

*I don't know how to share a screenshot, but here are the gains shown from 2004-2020 (This timeframe includes the 2008 crash & recovery.)


VTSAX = 218.28%
VIGAX = 313.19%
VITAX = 505.92%

VIGAX outperformed VTSAX by almost 100% in that time period. Can someone explain why VTSAX is the preferred fund for the majority of investors? I understand VITAX is a tech-heavy fund & that there was a tech bubble, but 505.92% vs 218.28% over the past 16 years is a huge difference. Do many of you own it, or have most of you avoided it?

I'm relatively new at investing and not trying to argue a point or say the majority is wrong, but I'm just trying to understand how these numbers are misleading me.

mystupidglasses
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Re: VTSAX vs Higher gain funds?

Post by mystupidglasses » Fri Feb 14, 2020 2:16 pm

Diversification is one of the principles of Boglehead investing. Concentrating your investments in one sector is on the same continuum as investing in a single stock. Over that period, an investment in AAPL would have returned over 200-fold. Why not do that? These trends ebb and flow over a person's investing lifetime.

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Wiggums
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Re: VTSAX vs Higher gain funds?

Post by Wiggums » Fri Feb 14, 2020 2:24 pm

Buy the market and get market returns. The fund is diversified. The three fund portfolio is easy to manage and has performed well. I’d be careful chasing past returns.

Many other funds or combination of fund may have higher returns. There is nothing wrong with creating your own portfolio variation. In fact, other brokers have talked about creating their own hybrid index variation. This might cause confusion with new investors. Time will tell.

I read this response from Rick Ferri:

“I don’t agree with the SEC allowing an investment company to create any list of securities by any means and call that list an index, then allow the same company to track their own index and call it a “passively managed index" fund or ETF. So wrong!”

Triple digit golfer
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Re: VTSAX vs Higher gain funds?

Post by Triple digit golfer » Fri Feb 14, 2020 2:54 pm

The numbers are not misleading at all. Growth funds and tech have been great performers in recent years.

Do you feel they will continue to be the best performers? I doubt that. In fact, I would bet they'll likely lag the market.

Owning the entire market gives you the return of U.S. (or global, if you invest globally) businesses. The ultimate in diversification.

Restricting your investments to one sector (especially one that is valued very highly) is a recipe for disaster.

mega317
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Re: VTSAX vs Higher gain funds?

Post by mega317 » Fri Feb 14, 2020 3:05 pm

WhiteRabbit wrote:
Fri Feb 14, 2020 2:10 pm
Most of my funds are invested in VTSAX because that seems to be the most popular choice here & other forums.
Not a great reason. Do you understand and agree with WHY it's popular?
But, when I look over Vanguard's list of funds I see others that have performed better over all the time frames listed (1,3,5,& 10 years).
And Dayton has a better record for the whole year than Duke, UNC, Kentucky, Kansas. Want to bet on Dayton against any of those other teams going forward?

10 years is nothing in an investing timeline. I bought my first stock at 18 and if my family history is any indication I have a shot at holding it for 75 years. Or if not then at least my heirs or their heirs are likely to.
https://www.bogleheads.org/forum/viewtopic.php?t=6212

sycamore
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Re: VTSAX vs Higher gain funds?

Post by sycamore » Fri Feb 14, 2020 3:06 pm

WhiteRabbit wrote:
Fri Feb 14, 2020 2:10 pm
...
VIGAX outperformed VTSAX by almost 100% in that time period. Can someone explain why VTSAX is the preferred fund for the majority of investors? I understand VITAX is a tech-heavy fund & that there was a tech bubble, but 505.92% vs 218.28% over the past 16 years is a huge difference. Do many of you own it, or have most of you avoided it?

I'm relatively new at investing and not trying to argue a point or say the majority is wrong, but I'm just trying to understand how these numbers are misleading me.
The numbers aren't misleading you. They are what they are, but they're not a prediction of the future. VTSAX is more diversified than VITAX. If you invest in VTSAX, you'll get the overall market return. If you want better than market return, you need to to tilt your investment to one sector of the market, or even some small number of companies in that sector. Many people have learned how risky doing that can be.

For example, here's a link to portfoliovisualizer that includes data from 1999 to Jan 2020.

I used the "investor class" shares of Vanguard Total Stock and Vanguard Growth Index because the "admiral class" shares didn't exist long enough. I used the XLK ETF (Technology Select Sector SPDR ETF) in place of Vanguard's VITAX; they're not direct replacements but it gives you an idea of how far technology-centered funds fell in the dot com crash.

After all this time, Total Stock outperformed those sector and growth funds. And not least of all because Total Stock includes the same companies that are in those funds.

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BolderBoy
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Re: VTSAX vs Higher gain funds?

Post by BolderBoy » Fri Feb 14, 2020 3:10 pm

WhiteRabbit wrote:
Fri Feb 14, 2020 2:10 pm
VIGAX outperformed VTSAX by almost 100% in that time period. Can someone explain why VTSAX is the preferred fund for the majority of investors?
Chasing returns rarely works out over the long haul. The only way you can be certain that you own all the winners in any given year is to own ALL publicly traded stocks. That is why VTSAX is the preferred fund.
"Never underestimate one's capacity to overestimate one's abilities" - The Dunning-Kruger Effect

Topic Author
WhiteRabbit
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Re: VTSAX vs Higher gain funds?

Post by WhiteRabbit » Fri Feb 14, 2020 3:33 pm

sycamore wrote:
Fri Feb 14, 2020 3:06 pm
WhiteRabbit wrote:
Fri Feb 14, 2020 2:10 pm
...
VIGAX outperformed VTSAX by almost 100% in that time period. Can someone explain why VTSAX is the preferred fund for the majority of investors? I understand VITAX is a tech-heavy fund & that there was a tech bubble, but 505.92% vs 218.28% over the past 16 years is a huge difference. Do many of you own it, or have most of you avoided it?

I'm relatively new at investing and not trying to argue a point or say the majority is wrong, but I'm just trying to understand how these numbers are misleading me.
The numbers aren't misleading you. They are what they are, but they're not a prediction of the future. VTSAX is more diversified than VITAX. If you invest in VTSAX, you'll get the overall market return. If you want better than market return, you need to to tilt your investment to one sector of the market, or even some small number of companies in that sector. Many people have learned how risky doing that can be.

For example, here's a link to portfoliovisualizer that includes data from 1999 to Jan 2020.

I used the "investor class" shares of Vanguard Total Stock and Vanguard Growth Index because the "admiral class" shares didn't exist long enough. I used the XLK ETF (Technology Select Sector SPDR ETF) in place of Vanguard's VITAX; they're not direct replacements but it gives you an idea of how far technology-centered funds fell in the dot com crash.

After all this time, Total Stock outperformed those sector and growth funds. And not least of all because Total Stock includes the same companies that are in those funds.

Thank you for showing me with the Portfolio Visualizer. I couldn't remember where to find the longer term data, and wouldn't have known which funds to substitute my younger fund names with.

Now, of course, my next question is whether times have changed and the new winners will continue to win? Diversification can be a double-edged sword with the strong carrying the weak, right? Larger companies do have an unfair advantage with the economy of scale and access to things unavailable to smaller companies. Look at Amazon, etc. I guess I'm just trying to point out that the markets and our economy have changed a lot since 1985, and when you look at shorter time frames the numbers are quite different.

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grabiner
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Re: VTSAX vs Higher gain funds?

Post by grabiner » Fri Feb 14, 2020 8:48 pm

WhiteRabbit wrote:
Fri Feb 14, 2020 2:10 pm
I'm sure this has been covered, so feel free to link to threads that cover it.

Most of my funds are invested in VTSAX because that seems to be the most popular choice here & other forums. But, when I look over Vanguard's list of funds I see others that have performed better over all the time frames listed (1,3,5,& 10 years).
The whole purpose of Total Stock Market Index is to be average, before expenses. With Total Stock Market, you don't need to worry whether growth or value stocks outperform (and the other will necessarily underperform).
WhiteRabbit wrote:
Fri Feb 14, 2020 3:33 pm
Now, of course, my next question is whether times have changed and the new winners will continue to win? Diversification can be a double-edged sword with the strong carrying the weak, right? Larger companies do have an unfair advantage with the economy of scale and access to things unavailable to smaller companies. Look at Amazon, etc. I guess I'm just trying to point out that the markets and our economy have changed a lot since 1985, and when you look at shorter time frames the numbers are quite different.
The markets always change. The key is that investors know about the changes, and the price reflects that; investors will sell Amazon shares if they can get enough to make up for the expected future profits they are giving up.

And because larger companies are less risky, investors will trade smaller stocks at prices which they expect will give higher expected returns. This is why you sometimes see Bogleheads (including me) overweighting small-cap stocks, taking more risk for the prospect of higher returns.

It is easier to see this effect in the bond markets, where returns are fixed. Investors trust the US Treasury to pay its debts; therefore, they buy and sell Treasury bonds at high prices, getting low returns. Investors do not trust corporations as much, so corporate bonds trade at prices which give higher returns as long as the bonds do not default. This doesn't make either type of bonds better investments, as there is a trade-off between return and risk.
Wiki David Grabiner

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Phineas J. Whoopee
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Re: VTSAX vs Higher gain funds?

Post by Phineas J. Whoopee » Fri Feb 14, 2020 10:48 pm

Go ten years back in time, invest then in what turned out to have had the highest return, and you'll be rich now. No, this is not cynicism. It's pointing out past performance does not guarantee future results. Lots of money has been lost ignoring that basic fact.
PJW

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