Grok’s Investing tip #3/10: Index, Index, Index, But...

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grok87
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Grok’s Investing tip #3/10: Index, Index, Index, But...

Post by grok87 » Sun Jan 09, 2011 10:46 pm

Tip #3: Index, Index, Index! But if you must do some active management, then follow this approach…

People say to me- “Grok, indexing is just too boring!” My response: As Winston Churchill once said, “In finance, everything that is agreeable is unsound and everything that is sound is disagreeable.” So index, index, index! If you want excitement get a hobby. But…if you simply can’t resist a little active management, here are some suggested rules to limit the potential damage:

A) Limit your active management money to a small percentage of your portfolio. Something like 5%. Even better, don’t let it grow as the rest of your portfolio grows- I.e. keep it to fixed dollar amount. Basically this is like gambling. I find it just as enjoyable to gamble for low stakes as for higher stakes.

B) Don’t buy individual corporate or municipal bonds, or preferreds, or convertibles, etc. See Grok’s Investment Tip #1

C) If you go with actively managed mutual funds, go for the ones with the lowest expense ratios (like Vanguard’s). Morningstar recently did a study in which they found that low expense ratios are the best predictor of future performance (even better than their much vaunted star system!)
http://moneywatch.bnet.com/investing/bl ... mance/470/

Be careful though- a fund’s expense ratio is not the whole story. Trading costs are not included in the fund’s expense ratio and can be significant. Mr. Bogle has estimated that every 100% points of turnover adds 1% point of expense ratio. Plus higher turnover would hurt tax-efficiency.
So skip those 5 star Morningstar funds and go with funds with low expense ratios AND low turnover.

D) If you buy individual stocks, don’t buy anything in the news. It doesn’t matter whether it is good news or bad news. Studies have shown that buying stocks in the news leads to poor returns.
http://faculty.haas.berkeley.edu/odean/ ... s_2008.pdf
Instead you might try buying, ignored, unloved small cap value stocks like the ones that this ETF (and similar ETFs) owns
http://finance.yahoo.com/q/hl?s=RZV
If you find it disagreeable to buy small unsexy companies that no-one has ever heard of, refer back to Winston Churchill!

cheers,
RIP Mr. Bogle.

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Post by Noobvestor » Sun Jan 09, 2011 11:12 pm

In my modestly-sized play money account, I hold two funds given just 1 star by M* ... so far, so good, they have risen faster than most of my other holdings. They were/are, IMHO, undervalued. They are also risky as heck and who knows what the future holds - index, index, index = the vast majority for me 8) 5% rule FTW!
"In the absence of clarity, diversification is the only logical strategy" -= Larry Swedroe

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Post by fredflinstone » Sun Jan 09, 2011 11:40 pm

hey Grok, love the tips. Just like I nitpicked the last tip, I am going to quibble with you here.

Granted, for most investors, indexing is absolutely the way to go. You can never go wrong with the Total Stock Market Index and a good bond index fund. But as Wagnerjb has pointed out elsewhere on this Forum, it's more tax-efficient for high net worth investors to buy a bunch of (more or less) randomly-selected large cap low-dividend growth stocks as opposed to a large cap growth index fund.

Some advantages of the do-it-yourself approach:
- it is possible to keep dividends very low, resulting in minimal dividend taxes;
- it makes it easier to tax-loss harvest, since there is almost always going to be at least one stock that has incurred a loss;
- makes it possible to give money to charity in a highly tax-efficient manner (i.e., give away your most appreciated shares);
- zero or near-zero fees in perpetuity (since many brokers offer a certain number of free trades to high net worth clients)

Even Jack Bogle himself--the father of index funds!--has had positive things to say about do-it-yourself psuedo-indexing. See http://www.bogleheads.org/forum/viewtop ... highlight=

On a related note, I have discussed the possibility of creating a do-it-yourself micro-cap index fund. See: http://www.bogleheads.org/forum/viewtop ... highlight=

Granted, this idea was not positively received by most Bogleheads. Most consider it absurd. Nevertheless, I think it is a reasonable approach for high net worth investors who want exposure to micro-cap stocks. The reason: the alternatives are horrible. In 2009, all micro-cap funds trailed the CRSP 10 micro-cap Index by 55 percentage points or more: http//www.forbes.com/2010/02/02/microcaps-fun ... ferri.html.

You draw a dichotomy between indexing (good) and active management (bad). Yet I believe it is possible to deviate from pure indexing without engaging in active management. In other words, the approach I'm advocating--call it "psuedo-indexing"--is a third way.
Stocks 28 / Gold 23 / Long-term US treasuries 19 / Cash 22 / TIPS 8

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Post by tetractys » Mon Jan 10, 2011 12:03 am

Grok,

Very enjoyable, informative, and interesting posts so far. Looking forward to the next.
fredflinstone wrote:On a related note, I have discussed the possibility of creating a do-it-yourself micro-cap index fund. See: http://www.bogleheads.org/forum/viewtop ... highlight=
... I think it is a reasonable approach for high net worth investors who want exposure to micro-cap stocks. The reason: the alternatives are horrible. In 2009, all micro-cap funds trailed the CRSP 10 micro-cap Index by 55 percentage points or more: ...
This I've got to see fredflinstone. Obviously, to get those better returns your going to have to pick different stocks than the pros or the indexes--not to mention traveling back in time to catch the '09 anomaly. -- Tet
Last edited by tetractys on Mon Jan 10, 2011 12:05 am, edited 1 time in total.
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Post by fredflinstone » Mon Jan 10, 2011 12:04 am

tetractys wrote:Grok,

Very enjoyable, informative, and interesting posts so far. Looking forward to the next.
fredflinstone wrote:On a related note, I have discussed the possibility of creating a do-it-yourself micro-cap index fund. See: http://www.bogleheads.org/forum/viewtop ... highlight=
... I think it is a reasonable approach for high net worth investors who want exposure to micro-cap stocks. The reason: the alternatives are horrible. In 2009, all micro-cap funds trailed the CRSP 10 micro-cap Index by 55 percentage points or more: ...
This I've got to see fredflinstone. Obviously, to get those better returns your going to have to pick different stocks than the pros or the indexes. -- Tet
I sure as heck ain't gonna trail the benchmark by 55 points.
Stocks 28 / Gold 23 / Long-term US treasuries 19 / Cash 22 / TIPS 8

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Post by tetractys » Mon Jan 10, 2011 12:09 am

fredflinstone wrote:I sure as heck ain't gonna trail the benchmark by 55 points.
Sorry, I made an edit above mentioning that '09 was anomalous and it's repercussions for you, but too slow. -- Tet
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Post by grok87 » Mon Jan 10, 2011 10:09 am

fredflinstone wrote:hey Grok, love the tips. Just like I nitpicked the last tip, I am going to quibble with you here.

Granted, for most investors, indexing is absolutely the way to go. You can never go wrong with the Total Stock Market Index and a good bond index fund. But as Wagnerjb has pointed out elsewhere on this Forum, it's more tax-efficient for high net worth investors to buy a bunch of (more or less) randomly-selected large cap low-dividend growth stocks as opposed to a large cap growth index fund.

Some advantages of the do-it-yourself approach:
- it is possible to keep dividends very low, resulting in minimal dividend taxes;
- it makes it easier to tax-loss harvest, since there is almost always going to be at least one stock that has incurred a loss;
- makes it possible to give money to charity in a highly tax-efficient manner (i.e., give away your most appreciated shares);
- zero or near-zero fees in perpetuity (since many brokers offer a certain number of free trades to high net worth clients)

Even Jack Bogle himself--the father of index funds!--has had positive things to say about do-it-yourself psuedo-indexing. See http://www.bogleheads.org/forum/viewtop ... highlight=

On a related note, I have discussed the possibility of creating a do-it-yourself micro-cap index fund. See: http://www.bogleheads.org/forum/viewtop ... highlight=

Granted, this idea was not positively received by most Bogleheads. Most consider it absurd. Nevertheless, I think it is a reasonable approach for high net worth investors who want exposure to micro-cap stocks. The reason: the alternatives are horrible. In 2009, all micro-cap funds trailed the CRSP 10 micro-cap Index by 55 percentage points or more: http//www.forbes.com/2010/02/02/microcaps-fun ... ferri.html.

You draw a dichotomy between indexing (good) and active management (bad). Yet I believe it is possible to deviate from pure indexing without engaging in active management. In other words, the approach I'm advocating--call it "psuedo-indexing"--is a third way.
Hi Fred,
Thanks-glad you are enjoying them.
Count me as a skeptic on your strategy. Here are a few thoughts:

1) Vanguard is really, really, good at indexing. See for example this piece by William Bernstein. You and I don't stand a chance of competing with the likes of Gus Saunter. We shouldn't even try.
http://www.efficientfrontier.com/ef/104/stupid.htm

2) Obviously in the extreme when you can buy every stock in the index, your strategy might be ok. But once you start to sample you risk lagging the benchmark. One way to see this is to compare some of the ishares ETFs like EEM to equivalent vanguard ones like VWO. EEM samples and holds a much smaller number of stocks than VWO ( I think about half as many). In 2007 this caused real problems for the fund. Here are the returns:

Emerging Markets Index: 39.4%
VWO: 38.9%
EEM: 33.1%

yikes- it lagged by 6.3% points!


3) Tax loss harvesting- I like this and do it myself. But I think it can be overvalued. I have a tip coming out on this so stay tuned!

4) Re dividend paying stocks- I wouldn't overweight them, but I wouldn't underweight them either

cheers,
RIP Mr. Bogle.

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Post by conundrum » Mon Jan 10, 2011 10:15 am

Thanks Grok for your investing tip#3. I appreciate all your contributions and especially your investment tips series.

Drum :lol:

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Post by fredflinstone » Mon Jan 10, 2011 10:19 am

grok87 wrote:1) Vanguard is really, really, good at indexing. See for example this piece by William Bernstein. You and I don't stand a chance of competing with the likes of Gus Saunter. We shouldn't even try.
http://www.efficientfrontier.com/ef/104/stupid.htm
I am not questioning Vanguard's indexing skill. I am willing to accept minor tracking error (say, plus or minus a percentage point) in exchange for the benefits I listed above.
grok87 wrote:2) Obviously in the extreme when you can buy every stock in the index, your strategy might be ok. But once you start to sample you risk lagging the benchmark. !
Again, I am willing to accept minor tracking error. The error could just as easily work in my favor as against me.
grok87 wrote:3) Tax loss harvesting- I like this and do it myself. But I think it can be overvalued. I have a tip coming out on this so stay tuned!
OK, I look forward to reading what you have to say about this.
grok87 wrote:4) Re dividend paying stocks- I wouldn't overweight them, but I wouldn't underweight them either
I have mixed feelings about this. Under current tax law, I agree, the argument for underweighting dividend-paying stocks is not all that strong. That could change, however, if taxes on dividends increase in the future.
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Post by dbr » Mon Jan 10, 2011 10:29 am

Given that only four of Vanguard's 27 bond funds are index funds, including none of their Treasury funds, I think this tip needs to be nuanced a bit.

The general idea is sound and fundamental to good investing, but as stated might be confusing in practice.

On the other hand, maybe Vanguard not-index management of its bond funds is a bad idea that should be fixed.

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Post by SpringMan » Mon Jan 10, 2011 10:59 am

dbr wrote:Given that only four of Vanguard's 27 bond funds are index funds, including none of their Treasury funds, I think this tip needs to be nuanced a bit.

The general idea is sound and fundamental to good investing, but as stated might be confusing in practice.

On the other hand, maybe Vanguard not-index management of its bond funds is a bad idea that should be fixed.
I was thinking the same thing. The Vanguard bond funds that are indexed have no advantage in their expense ratio, both types have expenses of 12 basis points (admiral shares) in most cases. On the other hand, Fidelity Spartan treasury bond funds are indexed and I see no performance advantage in those vs Vanguard's actively managed treasury funds.
Best Wishes, SpringMan

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Post by dbr » Mon Jan 10, 2011 11:04 am

SpringMan wrote:
dbr wrote:Given that only four of Vanguard's 27 bond funds are index funds, including none of their Treasury funds, I think this tip needs to be nuanced a bit.

The general idea is sound and fundamental to good investing, but as stated might be confusing in practice.

On the other hand, maybe Vanguard not-index management of its bond funds is a bad idea that should be fixed.
I was thinking the same thing. The Vanguard bond funds that are indexed have no advantage in their expense ratio, both types have expenses of 12 basis points (admiral shares) in most cases. On the other hand, Fidelity Spartan treasury bond funds are indexed and I see no performance advantage in those vs Vanguard's actively managed treasury funds.
There was a recent faux pas in VIPSX that Vanguard has admitted to.

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Post by grok87 » Mon Jan 10, 2011 11:15 am

dbr wrote:
SpringMan wrote:
dbr wrote:Given that only four of Vanguard's 27 bond funds are index funds, including none of their Treasury funds, I think this tip needs to be nuanced a bit.

The general idea is sound and fundamental to good investing, but as stated might be confusing in practice.

On the other hand, maybe Vanguard not-index management of its bond funds is a bad idea that should be fixed.
I was thinking the same thing. The Vanguard bond funds that are indexed have no advantage in their expense ratio, both types have expenses of 12 basis points (admiral shares) in most cases. On the other hand, Fidelity Spartan treasury bond funds are indexed and I see no performance advantage in those vs Vanguard's actively managed treasury funds.
There was a recent faux pas in VIPSX that Vanguard has admitted to.
was it VIPSX or VFITX? do you have a link?
RIP Mr. Bogle.

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Post by dbr » Mon Jan 10, 2011 11:24 am

grok87 wrote:
dbr wrote:
SpringMan wrote:
dbr wrote:Given that only four of Vanguard's 27 bond funds are index funds, including none of their Treasury funds, I think this tip needs to be nuanced a bit.

The general idea is sound and fundamental to good investing, but as stated might be confusing in practice.

On the other hand, maybe Vanguard not-index management of its bond funds is a bad idea that should be fixed.
I was thinking the same thing. The Vanguard bond funds that are indexed have no advantage in their expense ratio, both types have expenses of 12 basis points (admiral shares) in most cases. On the other hand, Fidelity Spartan treasury bond funds are indexed and I see no performance advantage in those vs Vanguard's actively managed treasury funds.
There was a recent faux pas in VIPSX that Vanguard has admitted to.
was it VIPSX or VFITX? do you have a link?
Sorry, I keep losing track of the threads, but I just read it again here yesterday. Vanguard was quoted by someone. The error was trying to make a play on shortening maturity in VIPSX thinking real rates would go up and they were dead wrong. I really feel Vanguard should not be trying to exercise this kind of garbage thinking in bond funds even if they aren't necessarily index funds.

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Post by friar1610 » Mon Jan 10, 2011 12:19 pm

fredflinstone wrote:
Granted, for most investors, indexing is absolutely the way to go. You can never go wrong with the Total Stock Market Index and a good bond index fund. But as Wagnerjb has pointed out elsewhere on this Forum, it's more tax-efficient for high net worth investors to buy a bunch of (more or less) randomly-selected large cap low-dividend growth stocks as opposed to a large cap growth index fund.
Just curious what you consider high net worth?

Thanks.
Friar1610

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Post by Beagler » Mon Jan 10, 2011 1:02 pm

Funny, I was once taken to task on this forum for bringing up the fact that VIPSX (VG TIPS fund) is not an index fund. I was told it's certainly index- like, and close enough.

Hey, now the managers of VIPSX can trade war stories with the TBM managers, who also tried to juice the returns (and ended up trailing the benchmark).

I feel I've been vindicated.
Last edited by Beagler on Mon Jan 10, 2011 5:26 pm, edited 1 time in total.
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Post by grok87 » Mon Jan 10, 2011 1:33 pm

dbr wrote:
grok87 wrote:
dbr wrote:
SpringMan wrote:
dbr wrote:Given that only four of Vanguard's 27 bond funds are index funds, including none of their Treasury funds, I think this tip needs to be nuanced a bit.

The general idea is sound and fundamental to good investing, but as stated might be confusing in practice.

On the other hand, maybe Vanguard not-index management of its bond funds is a bad idea that should be fixed.
I was thinking the same thing. The Vanguard bond funds that are indexed have no advantage in their expense ratio, both types have expenses of 12 basis points (admiral shares) in most cases. On the other hand, Fidelity Spartan treasury bond funds are indexed and I see no performance advantage in those vs Vanguard's actively managed treasury funds.
There was a recent faux pas in VIPSX that Vanguard has admitted to.
was it VIPSX or VFITX? do you have a link?
Sorry, I keep losing track of the threads, but I just read it again here yesterday. Vanguard was quoted by someone. The error was trying to make a play on shortening maturity in VIPSX thinking real rates would go up and they were dead wrong. I really feel Vanguard should not be trying to exercise this kind of garbage thinking in bond funds even if they aren't necessarily index funds.
dbr,
Hmm...are you sure it wasn't VFITX (which lagged its index by 3% points in 2008). I just looked at VIPSX's returns and I'm not seeing the issue
https://personal.vanguard.com/us/funds/ ... t=tab%3A1a
cheers,
RIP Mr. Bogle.

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Post by dbr » Mon Jan 10, 2011 1:35 pm

grok87 wrote: dbr,
Hmm...are you sure it wasn't VFITX (which lagged its index by 3% points in 2008). I just looked at VIPSX's returns and I'm not seeing the issue
https://personal.vanguard.com/us/funds/ ... t=tab%3A1a
cheers,
To have misread or misremembered is entirely possible.

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Re: Grok’s Investing Tip 3/10: Index, Index, Index, But...

Post by Beagler » Mon Jan 10, 2011 1:41 pm

grok87 wrote:..Don’t buy individual corporate or municipal bonds....
Larry disagrees with this:
"A) Fund expenses
B) Fund trading costs, not only spreads but market impact costs, especially during periods of panic when forced sales from redemptions by investors leads to much higher trading costs. Studies have found that forced trades are much more expensive. One advantage of buying your own bonds is that no one else can impose their trading costs on you. That is one reason DFA doesn't deal with the public (hot money). " http://tinyurl.com/4tdl5ny

On a personal note, I can tell you that carefully chosen individual muni bonds are quite a viable option.
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Re: Grok’s Investing Tip 3/10: Index, Index, Index, But...

Post by Wagnerjb » Mon Jan 10, 2011 1:43 pm

grok87 wrote:Tip #3: Index, Index, Index!
I would change this into three tips. First, diversify broadly. Second, keep costs down. Third, be tax efficient.

Then you can explain how each leads you to index funds most of the time, but not always. We don't need to index Treasuries since diversification (from risk) isn't necessary. We don't buy an index fund with high fees. And a high turnover (and tax inefficient) index fund may be inferior to a lower turnover active fund.

Don't just say "BUY AN INDEX FUND!!!". Explain why they are almost always the best investment.

Best wishes.
Andy

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Re: Grok’s Investing Tip 3/10: Index, Index, Index, But...

Post by grok87 » Mon Jan 10, 2011 10:50 pm

Wagnerjb wrote:
grok87 wrote:Tip #3: Index, Index, Index!
I would change this into three tips. First, diversify broadly. Second, keep costs down. Third, be tax efficient.

Then you can explain how each leads you to index funds most of the time, but not always. We don't need to index Treasuries since diversification (from risk) isn't necessary. We don't buy an index fund with high fees. And a high turnover (and tax inefficient) index fund may be inferior to a lower turnover active fund.

Don't just say "BUY AN INDEX FUND!!!". Explain why they are almost always the best investment.

Best wishes.
Thanks- I agree there are some undiverisfied, higher cost, higher turnover index funds out there that should be avoided.
cheers,
RIP Mr. Bogle.

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Re: Grok’s Investing Tip 3/10: Index, Index, Index, But...

Post by grok87 » Tue Jan 11, 2011 9:31 am

Beagler wrote:
grok87 wrote:..Don’t buy individual corporate or municipal bonds....
Larry disagrees with this:
"A) Fund expenses
B) Fund trading costs, not only spreads but market impact costs, especially during periods of panic when forced sales from redemptions by investors leads to much higher trading costs. Studies have found that forced trades are much more expensive. One advantage of buying your own bonds is that no one else can impose their trading costs on you. That is one reason DFA doesn't deal with the public (hot money). " http://tinyurl.com/4tdl5ny

On a personal note, I can tell you that carefully chosen individual muni bonds are quite a viable option.
Well again I'm advocating skipping these sort of bonds all together and going with treasuries/tips. I do have some munis though myself to free up tax advantaged space to hold small cap value and reits.

I can see your argument for individual munis over a fund. Another point i would add is that you can control your credit risk better- just buy state GO bonds which I think are very safe.
The big disadvantage that I think outweighs a lot of the advantages is liquidity risk. If you want to sell before maturity you will take a big haircut. Look at the trading in this bond for example:
http://investinginbonds.com/municipalbo ... =13063A5D2
Look at the trades on 12/21.
135 was purchased from a customer at a price of 103.759
then a little later that day it was sold between dealers at 104.319
then later some of it (25k) was sold to another customer at 106.281
so the bid ask spread was 2.4% which is pretty enormous. (106.281/103.759-1)

I think one of the lessons of the 2008 crisis is that liquidity matters. Having the option to redeploy capital (buy when others can't) during a crisis is valuable. One should never give up liquidity for free or too cheaply. I would argue that is partly what one is doing when you buy individual munis instead of going with a fund -like Vanguard admiral muni funds with their high credit quality, great diversification, and incredibly cheap expense ratios- 11 bps.
cheers,
RIP Mr. Bogle.

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Post by Dan Moroboshi » Tue Jan 11, 2011 10:18 am

grok87 wrote:
dbr wrote:
SpringMan wrote:
dbr wrote:Given that only four of Vanguard's 27 bond funds are index funds, including none of their Treasury funds, I think this tip needs to be nuanced a bit.

The general idea is sound and fundamental to good investing, but as stated might be confusing in practice.

On the other hand, maybe Vanguard not-index management of its bond funds is a bad idea that should be fixed.
I was thinking the same thing. The Vanguard bond funds that are indexed have no advantage in their expense ratio, both types have expenses of 12 basis points (admiral shares) in most cases. On the other hand, Fidelity Spartan treasury bond funds are indexed and I see no performance advantage in those vs Vanguard's actively managed treasury funds.
There was a recent faux pas in VIPSX that Vanguard has admitted to.
was it VIPSX or VFITX? do you have a link?
Perhaps it was this thread?

Why is Vanguard TIPS fund keeping duration so short?

Or maybe this one?

VIPSX vs similar maturity TIPS- huge yield discrepancy

Also relevant:

Vanguard TIPS Fund Maturity Graph

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Post by dbr » Tue Jan 11, 2011 5:12 pm

Yep, EmergDoc posted the relevant quote in this thread:

http://www.bogleheads.org/forum/viewtopic.php?t=66399

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Re: Grok’s Investing Tip 3/10: Index, Index, Index, But...

Post by grap0013 » Tue Jan 11, 2011 8:31 pm

Wagnerjb wrote:I would change this into three tips. First, diversify broadly. Second, keep costs down. Third, be tax efficient.
I say third, "achieve highest after tax returns". I can be in the lowest tax bracket and be very tax efficient, but I'd much rather be in the highest tax bracket. After tax return is all that matters.
There are no guarantees, only probabilities.

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Post by grok87 » Wed Jan 12, 2011 1:23 pm

dbr wrote:Yep, EmergDoc posted the relevant quote in this thread:

http://www.bogleheads.org/forum/viewtopic.php?t=66399
Thanks. The quote from the semi-annual report is talking about the 6 month period ending 6/30/10. As the report discusses the fund tracked its index well over that period
https://personal.vanguard.com/us/Litera ... main=false
the fund returned 4.28% vs index at 4.41%.
cheers,
RIP Mr. Bogle.

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Post by dbr » Wed Jan 12, 2011 2:50 pm

grok87 wrote:
dbr wrote:Yep, EmergDoc posted the relevant quote in this thread:

http://www.bogleheads.org/forum/viewtopic.php?t=66399
Thanks. The quote from the semi-annual report is talking about the 6 month period ending 6/30/10. As the report discusses the fund tracked its index well over that period
https://personal.vanguard.com/us/Litera ... main=false
the fund returned 4.28% vs index at 4.41%.
cheers,
Then what is the apology for, that they should have beaten the index? Taken all in all, I don't worry about it.

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Post by pkcrafter » Wed Jan 12, 2011 3:12 pm

Grok, your tip, which has generated lots of discussion, is very sound as it stands. Thanks for posting. Looking forward to the rest of the story.

Paul
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Post by grok87 » Wed Jan 12, 2011 6:35 pm

dbr wrote:
grok87 wrote:
dbr wrote:Yep, EmergDoc posted the relevant quote in this thread:

http://www.bogleheads.org/forum/viewtopic.php?t=66399
Thanks. The quote from the semi-annual report is talking about the 6 month period ending 6/30/10. As the report discusses the fund tracked its index well over that period
https://personal.vanguard.com/us/Litera ... main=false
the fund returned 4.28% vs index at 4.41%.
cheers,
Then what is the apology for, that they should have beaten the index? Taken all in all, I don't worry about it.
Well it is pretty standard in annual and semiannual reports to talk about the drivers of the funds performance over the most recent period relative to its benchmark index. That's really all they are doing. If you read the full report they say that there were two main drivers
1) THey posititioned themselves with shorter duration in anticipation of higher real rates. That bet went against them
2) They bought new tips at auction- that worked well.

Here's the full quote:
VIPSX's managers said wrote: Our management of the portfolio did
not add value relative to our benchmark
during the period. We did derive benefit
from positioning the portfolio in a way that
took advantage of new issuance of TIPS.
However, that effort was offset by our
decision to set the portfolio's average
duration below that of the benchmark.
This move, based on our expectation that
interest rates would rise, proved to
be incorrect.
cheers,
RIP Mr. Bogle.

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grok87
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tip 4

Post by grok87 » Thu Jan 13, 2011 8:14 am

RIP Mr. Bogle.

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Tip 5

Post by grok87 » Sat Jan 15, 2011 10:55 am

Here's the link to Tip #5: "To preserve real wealth skip Gold and buy TIPs"

http://www.bogleheads.org/forum/viewtop ... highlight=
cheers,
RIP Mr. Bogle.

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grok87
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Here's Tip 6

Post by grok87 » Sat Jan 29, 2011 8:10 pm

Here's the link to Tip #6:
Be Aligned: Buy This, Not That!
http://www.bogleheads.org/forum/viewtop ... highlight=

cheers,
RIP Mr. Bogle.

Topic Author
grok87
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tip 7

Post by grok87 » Fri Feb 18, 2011 8:56 am

RIP Mr. Bogle.

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grok87
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tip 8

Post by grok87 » Fri Apr 01, 2011 10:18 pm

Tip 8: Retire Worry-Free with TIPs as a Foundation
http://www.bogleheads.org/forum/viewtop ... highlight=
cheers,
RIP Mr. Bogle.

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grok87
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Tip #9

Post by grok87 » Thu Apr 28, 2011 6:43 pm

Tip#9: To Manage Risk Well, Use a Bar-Bell
http://www.bogleheads.org/forum/viewtopic.php?t=73669
cheers,
RIP Mr. Bogle.

Topic Author
grok87
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tip #10

Post by grok87 » Fri Oct 14, 2011 12:44 pm

tip #10: Get Real (Returns)!- the 3% solution

http://www.bogleheads.org/forum/viewtop ... 1318613970

cheers,
RIP Mr. Bogle.

manuvns
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Re: Grok’s Investing tip #3/10: Index, Index, Index, But..

Post by manuvns » Fri Oct 14, 2011 2:58 pm

grok87 wrote:
B) Don’t buy individual corporate or municipal bonds, or preferreds, or convertibles, etc. See Grok’s Investment Tip #1


cheers,
Does it mean corporate or municipal bonds, or preferreds, or convertibles ETF / funds are ok ?

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grok87
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Re: Grok’s Investing tip #3/10: Index, Index, Index, But..

Post by grok87 » Fri Oct 14, 2011 10:43 pm

manuvns wrote:
grok87 wrote:
B) Don’t buy individual corporate or municipal bonds, or preferreds, or convertibles, etc. See Grok’s Investment Tip #1


cheers,
Does it mean corporate or municipal bonds, or preferreds, or convertibles ETF / funds are ok ?
THe point of this thread is that if you are going to dabble in individual securities do it in stocks not bonds. Individual corporate bonds for example are just to illiquid to sell if you need to- you will get killed on costs (bid/ask spreads for example).

in tip 1 I made the case against corporate bond funds etc.- that's a different argument based on risk/return etc.
RIP Mr. Bogle.

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tip 11 is out

Post by grok87 » Sun Dec 18, 2011 10:44 pm

RIP Mr. Bogle.

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Re: Grok’s Investing tip #3/10: Index, Index, Index, But...

Post by grok87 » Tue Oct 16, 2012 10:36 pm

RIP Mr. Bogle.

NOLA
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Re: Grok’s Investing tip #3/10: Index, Index, Index, But...

Post by NOLA » Thu Oct 18, 2012 1:23 pm

Great series Gronk, appreciate you writing it.

One question regarding actively managed funds. I use almost all index funds, but was curious about the real expenses that come with chosing non-index funds. If I wanted to use 5% for a managed fund, I assume it would be better to use it in a tax-deferred account? Would it make a difference or not? I don't have any inexpensive fund choices in my 401k. All my funds, index or not, have around a 2% ER.

Earlier in the thread it mentions that expenses increase with 1% when "turnover ratio" is 100%. Does that change at all in tax-deferred account, or will it be just as expensive?

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Re: Grok’s Investing tip #3/10: Index, Index, Index, But...

Post by tadamsmar » Thu Oct 18, 2012 2:29 pm

You can gamble for free here:

www.ideosphere.com

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Re: Grok’s Investing tip #3/10: Index, Index, Index, But...

Post by rustymutt » Thu Oct 18, 2012 3:18 pm

I like the TIPs. I just bought me some VTIP today. I needed this to complete my written financial plan.
Even educators need education. And some can be hard headed to the point of needing time out.

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Re: Grok’s Investing tip #3/10: Index, Index, Index, But...

Post by grok87 » Thu Oct 18, 2012 6:10 pm

NOLA wrote:Great series Gronk, appreciate you writing it.

One question regarding actively managed funds. I use almost all index funds, but was curious about the real expenses that come with chosing non-index funds. If I wanted to use 5% for a managed fund, I assume it would be better to use it in a tax-deferred account? Would it make a difference or not? I don't have any inexpensive fund choices in my 401k. All my funds, index or not, have around a 2% ER.

Earlier in the thread it mentions that expenses increase with 1% when "turnover ratio" is 100%. Does that change at all in tax-deferred account, or will it be just as expensive?
Thanks Nola.
Your question is an insightful one. Yes it is better to put actively managed funds in tax deferred accounts due to the capital gains they tend to generate. Those "tax" costs are in addition to the trading costs (the 1% expense increase per 100% of turnover).
The capital gains issue is a little bit of a sleeper issue right now since many funds generated large losses in the past that they have been able to use to offset gains. But eventually that well will run dry.
Cheers,
RIP Mr. Bogle.

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grok87
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Re: Grok’s Investing tip #3/10: Index, Index, Index, But...

Post by grok87 » Thu Oct 18, 2012 6:54 pm

rustymutt wrote:I like the TIPs. I just bought me some VTIP today. I needed this to complete my written financial plan.
Thanks
RIP Mr. Bogle.

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Re: Grok’s Investing tip #3/10: Index, Index, Index, But...

Post by grok87 » Tue Nov 20, 2012 7:42 am

RIP Mr. Bogle.

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Re: Grok’s Investing tip #3/10: Index, Index, Index, But...

Post by grok87 » Thu May 16, 2013 5:19 pm

RIP Mr. Bogle.

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Re: Grok’s Investing tip #3/10: Index, Index, Index, But...

Post by grok87 » Thu Oct 17, 2013 9:47 pm

RIP Mr. Bogle.

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