Susan,

Here's a link to stockcharts which will allow you to compare returns on a specific date

chart 

I tried to do the growth of 10k for the 10 year numbers comparing the funds and ending on that date w/o success.  The MSN charts no longer include distributions and the smartmoney and fido charts won't let you customize for specific dates and the difference in returns was significant between the two methods of growth of 10k and I couldn't figure if it was date specific or the lack of reinvestment.  The numbers were so different and so screwy that I'm not even trying to give results.

Roberta 

Hi Susan & Roberta: We don't have to look anywhere else other than M* for relative outperformance. VTSMX is almost the same performance as VFINX (which is S&P500 index less ~0.18 ER). Thus, if a fund outperforms the index on a 5 yr & 10-yr basis, we know how the IndexUniverse article is stretching the truth to suit their point of view thru the use of that mythical beast called "the average fund".

Here is just one active fund example vs its index : Fidelity Contra : 10 Yr Total returns thru 5/9/08 are at 8.59% for FCNTX, which is an outperformance of full 4.70% vs the S&P500 index. Thus, against VFINX, it is an outperformance of 4.88% (assuming VFINX has an ER of 0.18%). That is huge amount of outperformace. We can compare any fund that is commonly talked about on these boards, and will have a similar answer on whether it outperformed or not. Thus, the long term history does provide some indication of the quality of fund management. Hope that helps .... Anil

YEAH! Ditto Sue!  You Go Girl! LOL

FYI

My Equity Port of AMF's vs comparable Index funds Port?

past 10 yrs

AMF port = 19% apy

Index port = 9% apy

now if earning 9% apy is enough for someone? Go for it..

But, if it isn't? guess you don't have anyother choice ( or Marry a Richer Spouse or one with a Rich Uncle ) ..

Or kick the Old man out to work a 2nd job... most are uselsess after age 40 anyway hanging around the house or Going to the Golf Course..and waste ave of $2,000 yr there.

Butt? If want my AMF Port? Will cost one a coupon for a Dozen Dunki Donuts and For 2 coffees at starbucks !

Hi Susan,

In the words of Ronald Regan: Well, there you go again.   : -- )

Phew, At least I didn't write this one!

Anyway, you should not get all steamed up about this article or the data. What Roth presents is a fact. Is it data mined? I don't know, maybe. But it's still a fact. I have seen several articles presenting similar data over the years for different time frames. The fact is that index funds do not appear to do so bad in down markets as people think. 

Susan wrote;
Yes, the market has behaved like a bear YTD and trended down. However, the market has been beating its way back UP from the losses of the whole 1st Quarter of 2008 --January, February and, most especially, March. Any data chosen while the market is working its way back UP is not presenting the true negative effect on index funds in the midst of a bear swing.

 

If you say index funds did worse at some earlier date, then you have to say they have done a lot better than active funds on the rebound to the date Roth uses, which is 4/25/08.  This would be questionable too.

An index fund is not designed to lead the market (OEFs), it is designed to be a reliable plain-Jane middle-of-the-road average of how the market (OEFs) performs.

Another undeniable fact is that index funds do beat a good majority of active funds over longer periods of time, so they do not occupy the middle of the road long-term.  No, you won't see them in the top quintile in shorter time frames. About 60-65% (my estimate) of the time they move up the rankings because of low costs. The other 35-40% is due to a good percentage of active funds tripping themselves up and falling out of the high rankings.

Susan, If an investor is going to be good using active funds, he or she has to first understand how things work. And he or she has to know what they are up against. There are some regular posters on MF who do understand this. They don't fight the facts: they know using active funds demands more work in both fund selection and monitoring if they want to have any chance of beating the benchmark index. They know it's isn't all that easy.

Can it be done? Yes, some investors do it. There are some active funds that have outperformed their benchmark, but buying them does not guarantee success. I think those investors who have been successful will be the first to tell you you have to know what you're doing. If you don't, you may pick good funds, but if you pick them for the wrong reason, your chances of long term outperformance are seriously diminished.

Paul

 

Hi Paul:

Who do you think will be a more successful investor; an index only investor with a diversified portfolio who panics every time the market corrects 10-20% and sells (usually at the bottom), or an active investor with a diversified portfolio who believes in the management and culture of the funds he is in and stays the course when the market corrects 10-20% because he has confidence that his managers will find opportunities in those dips?

The index/active debate always seem to leave out the way individual investors may understand and accept their investments.  Indexers rely 100% on theory.  But many of us have come to rely on humans in other walks of our lives (our doctors, teachers, religious leaders) and we are more comfortable knowing a human is watching over our funds, not a silicon chip somewhere.

So while index proponents can always find way to make the argument seem compelling from a "odds of success" standpoint, they can't change human nature.

In the end, anyone with a good plan that can stay with it, be it indexed or active, will be fine.  It seem active investors understand this, but too many indexers don't.

best,

Bill

Hi Bill,

Obviously, knowing and following proper fundamentals is important for all investors. I considered adding some comments about index investing, but thought is was a bit off my subject for that post.

Bill wrote;
Who do you think will be a more successful investor; an index only investor with a diversified portfolio who panics every time the market corrects 10-20% and sells (usually at the bottom), or an active investor with a diversified portfolio who believes in the management and culture of the funds he is in and stays the course......

The active fund investor, of course. Index investors also have to know proper fundamentals and follow them. They are not immune to all the behavioral errors. But active funds investors actually have to know a little more. They have to know how to properly choose their individual funds.

The index/active debate always seem to leave out the way individual investors may understand and accept their investments.  Indexers rely 100% on theory.  But many of us have come to rely on humans in other walks of our lives (our doctors, teachers, religious leaders) and we are more comfortable knowing a human is watching over our funds, not a silicon chip somewhere.

First off, Bill, I want to make it clear that I am not debating the use of active funds. And there seems to be some indexers who don't understand the theory and do not set up good portfolios. They are just as prone to performance chasing as any investor.  

So while index proponents can always find way to make the argument seem compelling from a "odds of success" standpoint, they can't change human nature.

I agree, and again, I'm not knocking active investing. The point in writing my first reply was simply that before anyone decides on the best way to invest, they need to understand the game. 

In the end, anyone with a good plan that can stay with it, be it indexed or active, will be fine. 

Yes, I agree with that.

It seem active investors understand this, but too many indexers don't.

This is your only comment that I would question. I would have to say the majority of active investors don't have any idea what they are doing. And I am not counting the members of M* forums because they are not a majority nor are they average. Indexing is not an intuitive choice and most investors don't understand it, but for those that do, I would not think they understand less about having a good plan and staying with it.

regards,

 

Paul 

 

 

Well, over the yrs, I found that btwn may thru Aug, news seems to get pretty boring and These Columnist have to print something,, And to try to stir up Interest as well..

And you think Roth is going to Hype Funds like CGMRX, CGMFX,FAIRX, etc?   and put them on investors radar screen...?  ( I hope not)

Thus I hope These columnist stick to Hyping Index Funds and thus Keep Directing Most Investors into them... and thus not Overload/Bloat Up our Favorite AMF's..and they end up like D&C funds... So let's Support These Guys and other Index Advocates.. and not condemn them...It's to our own self benefit..

 

 

I have most of my investments in my 401k and most of the funds in an actively managed balanced fund that, thankfully, has performed well (Fidelity Balanced).  However, for my taxable account, I have to say that I'm heavily influenced to put together an index portfolio based on the many, many prominent finance experts who advocate indexing.  I know there are many experts who advocate active funds, however, for a novice, like myself, who is not equipped to do in-depth analysis of actively managed funds, index funds give me solace knowing others who have done historical analysis say indexing is a profitable approach to investing.  Granted, there may be actively managed funds that outperform index funds, but indexing can be a viable option for making money over the long haul for the averageinvestor. 

Here's some more Short-Term performance data-mining:

In Kiplinger's annual Mutual Funds 2008 magazine they compared the short-term and long-term performance of over 3000 mutual funds.  In one column they used the Oct.-Nov. 2007 correction; it being the very short period October 9 to November 26, 2007.

VFINX...............................-9.5%
VTSMX.............................-9.6%
Average US Stock Fund......-8.3%

VGTSX..............................-5.4%
Avg.Diversified Inter'l Fund...-5.9%

In American Association of Individual Investors latest Quarterly Low-Load Mutual Fund Update their Bear Return column uses the period 11/01/07 to 3/31/08.  (I believe their database only includes about 1445 stock and bond funds.)

VFINX.................................-13.8%
VTSMX...............................-14.0%
Large-Cap Stock Cat. Avg......-14.6%

VGTSX...............................-15.0%
Foreign Stock Cat. Avg.........-15.6%

Coy