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"Index Funds" by Rick Ferri
Taylor Larimore 08-30-2002, 9:30 PM | Post #69479 | 
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Hi Diehards:
Returning from vacation, I was happy to see a long-awaited box from Amazon containing Diehard (over 1,000 posts) Rick Ferri's new book, "All About Index Funds". I have just finished reading this wonderful book. It is full of information and sound investing advice. Here are some examples:

"As of this writing there are well over 400 open-end and exchange-traded index funds."

"Common sense, simplicity, and perseverance are ideals we strive for in life. Yet, when we tackle the subject of investing, the guiding principles are often overshadowed by ambiguity, complexity, and irrationality."

"Morningstar is set to enter the industry as an active participant in the role of index licensor."

"The Dow is not the only index tracked by the Dow Jones Company. The firm has created more than 3000 U.S. and international indexes, including industry indexes."

"There is more money benchmarked to the S&P 500 Index than all other index funds combined."

"Each index structure has its good points and less desirable points. However, one methodology is not better than another; they are only different. In the end, is is very likely that the performance of all competing U.S. stock averages will be very close."

"The allure of sector funds is tantalizing.--My advice is to avoid most sector funds."

"While there are no hard and fast rules for the amount of international equity exposure placed in a portfolio, historically, a 30% exposure has helped reduced the risk of an all-U.S. stock portfolio and adds slightly to the return."

"Adding bond index funds to a portfolio of stock index funds lowers investment risk without significantly lowering returns."

"Most of the information you hear or read about predicting performance of a mutual fund is pure nonsense."

"Much of the credit for the success of indexing can be directed to one man, John Bogle, the founder of the Vanguard Group. Bogle's dedication to indexing has done more good for individual investors than any other person in modern finance."

"In the 1950s academic researchers began to search for "efficient" portfolios of stocks and found that the most efficient portfolio was the market itself."

"Overall, I do not recommend the average cost method of mutual fund accounting in a taxable account. FIFO accounting is better, and the actual cost method is best."

"Rather than simply investing when you have the money on hand, I recommend saving your taxable dollars and making regular scheduled quarterly investments."

"Mutual fund investors pay a variety of expenses, but none are as expensive as the tax that Uncle Sam can levy on your portfolio. Stick with low-cost, low-turnover index funds and practice good tax-management techniques such as tax swapping."

"One of the most successful bond index funds is the Vanguard Total Bond Index Fund. It invests in about 600 bonds and tracks the 6000-bond Lehman Aggregate Bond Index."

"Vanguard also includes Yankee Bonds (foreign debt) in their (bond) funds for added diversification."

"There is a rough rule of thumb you can use to determine if you should own tax-free bonds. Generally, if your combined state and federal income tax rate is 30% or more, then municipal bonds may be an appropriate choice for taxable accounts."

Quote from Allan Greenspan: "This decade is strewn with examples of bright people who thought they built a better mousetrap that could consistently extract abnormal returns from the financial markets. Some succeed for a time. But while there may occasionally be misconfigurations among market prices that allow abnormal returns, they do not persist."

"The life expectancy for a 70 year old is another 16 years, and if both husband and wife make it to age 70, then one of the two is expected to live another 26 years."

"It is always better to err on the side of conservatism rather than being aggressive. If you use a conservative estimate and the markets perform better than expected, you will end up with more money, which is always better than the other way around."

"Prior to the 1970s, the science of making an asset allocation decision was foreign to all but a few academic researchers."

"For individual investors index funds are an ideal way to reap the benefits of Modern Portolio Theory. Creating an asset allocation of stock and bond index funds can reduce the portfolio risk and increase the portfolio return."

"John Bogle, founder of the Vanguard Group, is one of those who believe in the one-fund concept. If you take Bogle's advice, you will buy one bond index fund, and one total U.S. stock market index fund. There is absolutely nothing wrong with this approach."

"Applying a consistent rebalancing strategy over several years increases portolio returns and significantly reduces risk."

"When you are finished choosing a bond index fund, a total U.S. stock market index fund, and a broad international index fund, you will have a very simple, yet complete portfolio. This approach offers broad diversification, low fees, tax efficiency, and ease of maintenance. It wil

Originally posted in thread: 22621
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