Buying The Whole Index Market

Chill,

A few to many negatives regarding the your previuos avatar lately??

Love the new one by the way.

I had a portfoio of $10K that gained about 5% in a few months but half of that disappeared from transaction costs. So what, no trading portfolio’s should be less than 50 or 75K? i’ll put money into retirement. thanks

[quote]thabigdon24 wrote:
I had a portfoio of $10K that gained about 5% in a few months but half of that disappeared from transaction costs. So what, no trading portfolio’s should be less than 50 or 75K? i’ll put money into retirement. thanks[/quote]

Are you addressing this to me? If so, I was talking about short-term trading, as opposed to day-trading. I don’t know who your brokerage firm is, but if you’re paying $250 in transaction fees, you’re probably being screwed.

Definately check out the fool.com. As I’ve said before, fool.com is to investing, what T-Nation is to weightlifting. Great resource.

I would recommend investing in an index fund if you just want something to put money and ‘forget about’. With more actively managed funds, you want to stay on track of what/how they are doing, unless you really believe in the fund manager.

Definately watch the transactions cost and management fees regardless of your choice though, you want your money working for you, not for the company holding your portfolio.

Money money muhneee…
Muuuuhhhhneeeee!

An index, or even a spdr, should be a basic core investment. It is a great brainless investment at that. Anyone who does not want to learn more about the market should put their money into an index.

That being said, an index is also a great way to measure your performance. If your investments are not beating index funds, there is no reason to invest in anything else.

As far as day trading, there are a few people who actually make money at it, and a whole shitload who are loosing their shirt, or lost their shirt. When the whole market is going up, it is easy to make money, but when it is not doing what people think it should, that is when the experts are separated from the wanabees.

You will see the same thing happen in the flipping house market real soon here. There are plenty of experts who have been doing this for years, and suddenly everyone is doing it, because real estate priced have been climbing like crazy.

Now that the market is slowing the experts are going to still make money, but the ones who’s mistakes were covered by a good market will lose their shirts.

Neither one of these things is as much to worry about if you are not investing your retirement, or making “bets” with big loans.

Back on the original topic, fool.com is a great resource. Be sure to go to the fool school section. Their 13 steps to investing foolishly is a great place to start.

[quote]The Mage wrote:
You will see the same thing happen in the flipping house market real soon here. There are plenty of experts who have been doing this for years, and suddenly everyone is doing it, because real estate priced have been climbing like crazy.
[/quote]

And let me just add that this is a GOOD thing… otherwise we’d have tremendous inflation on our hands.

[quote]helga wrote:
Chill,

A few to many negatives regarding the your previuos avatar lately??

Love the new one by the way.[/quote]

Thanks! Its not so the negative` comments as much as good solid comments with good premises that did it.

[quote]nephorm wrote:
thabigdon24 wrote:
I had a portfoio of $10K that gained about 5% in a few months but half of that disappeared from transaction costs. So what, no trading portfolio’s should be less than 50 or 75K? i’ll put money into retirement. thanks

Are you addressing this to me? If so, I was talking about short-term trading, as opposed to day-trading. I don’t know who your brokerage firm is, but if you’re paying $250 in transaction fees, you’re probably being screwed.[/quote]

Just listing another possibility. I have no idea of the business relationship and deals that took place in Thabigdon24’s case. It also could be a case of Churning.

[quote]nephorm wrote:
The Mage wrote:
You will see the same thing happen in the flipping house market real soon here. There are plenty of experts who have been doing this for years, and suddenly everyone is doing it, because real estate priced have been climbing like crazy.

And let me just add that this is a GOOD thing… otherwise we’d have tremendous inflation on our hands.[/quote]

More Wall Street related, but since we are talking human nature and cycles …

“A bear market is a period of time during which common stocks are returned to their rightful owners.”

“… all value is born out of chaos. And that the greatest values - the lifestyle changers, the pivot points of an investing lifetime - are born out of sheer, unreasoning panic. (…) In short, the amateur’s bear market is the professional’s big sale.” (Nick Murray)

“Financial genius is a short memory in a rising market.” (John Kenneth Galbrait)

[quote]MrChill wrote:
terribleivan wrote:
Question about why you want to find a fund to include multiple indexes? Why don’t you just pick a fund to index what you trust like the S&P? Or, just spread your cash out over a few index funds so you can choose the %'s you like?

A couple of limitations: minimum purchase amounts and transaction costs.

I agree with what most of you have posted, especially for boosting returns. Ideally, I’ll end up with a small basket of indices, including ones who are more Growth oriented, to skew my returns upwards*, because as well all know historically small caps have given a 20% premium on returns over big caps.

(* That’s what IFA/DFA does, but I don’t have the 100 K$ minimum account (and won’t have for a quite some time either).)

Long story short, I also can’t market-time shit. I know the US represents roughly half of the world’s stock market capitalization. But one year it’s the USA, the next it’s Mexico, the next it’s Lithuania, etc.

Call it too simplistic, but I see this as a whole. To quote a chemist, “Nothing is lost, nothing is created, everything is transformed.” … or more aptly “everything changes hands” with regards to money. Since I can’t market-time, and guess what the next big thing will be, I thought I’d just buy the whole enchilada … for starters.

Sure, I won’t get stellar nor dumpster returns, but for now I can live very well with a 10 year 11.60% average (Vanguard VHGEX) return. Either I dollar-cost average it, add indices one at a time (and feed the laggers), or buy sub-sectors to augment concentrations … all will depend on future cash flows.

Thanks! Currently searching for something similar on the fixed-income/bonds part of the porfolio. My ‘gamble’ money is in the world indices, but the ‘safe’ part must get higher returns than money market funds.

What a hobby!

[/quote]

Yeah, I’m stuck on the cash limitation side of things as well, so I’ve settled to index the S&P. I’m still short of their 50K minimum, but management fees and charges are low so I still end up ahead. If I didn’t get blasted 6 years ago it may be a different story, but such is life.

If time is on your side continue the agressive growth strategy, but temper it. Small cap investments can be good or bad. Not alot hit the skyrocket in price, so definitely diversify if you go that route. First and foremost, find out about them before you invest. When I was younger I looked hard into ebay at around $1 a share but didn’t have any cash to my name. Why did I like it? Unique and inventive. The rest is history.

BTW - I like the new avatar as well :slight_smile:

[quote]Maverick908 wrote:
David Swenson, who runs Yale’s endowment has a book out titled Unconventional Wisdom that basically discusses that very topic. His point is that the asset allocation decision is the biggest decision and that there is very little value added to active management (in fact, he believes it is value detracting).[/quote]

Very funny coincidence. I got a copy of a financial manager`s newsletter in which he dissects this book and recommends it. (Small tidbit, this manager accepts no account under 100 million dollars, so he must know his stuff a little bit.)

Anyway. According to Swensen, the following asset categories should be the foundation of any portfolio and suggests the following allocation: 30% American stocks, 15% Foreign stocks, 5% Emerging markets stocks, 20% Real Estate, 15% American T-Bills and 15% Real-return (inflation-indexed) US Gov bonds.

Also, Swensen lists 8 asset categories which should be EXCLUDED from portfolios: US Corporate bonds, High risk (junk) bonds, municipal bonds, foreign bonds (asset backed - ? - I`m translating here), speculative funds, LBOs (leveraged buyouts), and venture capital.

Food for thought.

That actually leads to something I’ve been hearing a lot more about the last few years: rebalancing.

The idea is that not only should you pick your initial asset allocation, but at least once a year you should reallocate your investments to try to get back to that asset allocation. If you’re inside a 401(k) or IRA with minimal or 0 transaction costs, you can do this by selling some and buying some. If you’re in a taxable account with more transaction costs, you can direct new money into the sectors that have lagged.

The “Getting Going” columnist in the WSJ, Jonathan Clements, had a column a while back that cited some study that showed doing this increased overall returns something like 10% overall. I’ll have to look up the column again.

[quote]BostonBarrister wrote:
That actually leads to something I’ve been hearing a lot more about the last few years: rebalancing.

The idea is that not only should you pick your initial asset allocation, but at least once a year you should reallocate your investments to try to get back to that asset allocation. If you’re inside a 401(k) or IRA with minimal or 0 transaction costs, you can do this by selling some and buying some. If you’re in a taxable account with more transaction costs, you can direct new money into the sectors that have lagged.

The “Getting Going” columnist in the WSJ, Jonathan Clements, had a column a while back that cited some study that showed doing this increased overall returns something like 10% overall. I’ll have to look up the column again.[/quote]

Boston (and Chill) - there have been studies that show that the majority of your returns over time will be based on your asset allocation decisions. Rebalancing is a very important part of the process as it forces you to sell winners and buy losers, which, since the market is cyclical, will end up benefitting you over time. There are a number of different rebalancing rules you can use. The easiest is simply to do it once per year. If you want to get more complex, you can assign tolerances to the asset classes and rebalance after the tolerances are violated.

A simple example would be setting your initial allocation to 50% equities and 50% bonds (THIS IS JUST AN EXAMPLE – I AM NOT ADVOCATING THIS) and using a 20% tolerance. Then, if an allocation swings by 20% or more, you rebalance. So, if market action resulted in your allocation becoming 75% equities and 25% bonds, you would then rebalance back to 50/50. There are lots of other methodologies, but a good asset allocation and a good rebalancing methodology that is consistently applied can be instrumental in succeeding in investing.

Rebalancing is a must indeed. That`s probably the only way to add value quickly and effortlessly. Supposing one has a plan, of course, one just buys more of the laggards and lets the market do its thing until the next rebalancing period.

Are some of you concerned with the last 3-year runup? I was going to send my lump sum transaction and then I thought about the classic buy high sell low mistake. I have mixed feelings on this one. On the one hand, reversion to the mean has taken place, the runup correcting the 2000+ decline. On the other hand, it`s still 3 years of almost uninterrupted positive returns in a row.

I dont want to market-time the whole thing. Suddenly, those momentum managers and behavioral finance funds make sense. They follow the herd, surft the wave, and get out of the market at the first sign of trouble. Are they perfect? No. Optimal opportunistic investment strategy during times of uncertainty (dont look at the titles, pay attention to who`s buying them)? Possibly. I am even surprised some specialized funds already exist for this type of investing (tickers: UBRLX, UBVLX).