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March 09, 2009


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Ummm... I have Vanguard index funds available in 401K and I wouldn't touch them - returns across all of the available funds both YTD and 12 Month are negative 30%-50% - don't think now is the time for index funds! and what about the give-back of returns for past 10-12 years? (And these are no-fee so that issue isn't relevant.)

I think to compare lo-fee index funds to managed or hedge is easy to make points - but it's the index itself that's risky.

I'm up YTD because I got OUT of index funds - and minimal losses (2%) for 2008 - so just curious, why do you advocate losing money in an index fund, at least short term (1-2yrs)?

Sue --

Because I don't invest for the short-term -- I have a 20-year plus time horizon. Moving back and forth into and out of stocks/funds is market timing, something I don't subscribe to. Why? Because no one can do it consistently, and it will eventually burn you bad.

So you timed it right this time and basically got lucky, but will you miss a resulting run-up as a result? Only time will tell. The one thing I do know: if you could accurately predict the ups and downs of the market, you wouldn't be commenting on this blog -- you'd be vacationing with Bill Gates in Bermuda!! ;-)

For more thoughts along this line, see this post:

FMF --

Gotta keep hammering this point. Eventually people will take notice.


FMF, one point about that NYT article is that they are including the tax implications. And they say that taxes account for 2/3 of the expense difference or 2.3% difference. With taxes the index came out 8% average and mutual fund 8.5% average. So without taxes I'd expect you'd add back that 2.3% difference and the active funds would be 1.8% ahead of the index on average. Plus they are assuming the maximum possible tax bracket rate for their calculations. The overwhelming majority of folks do not pay max tax rates. I think since most people seem to have their stocks in an IRA or 401k the tax implications would not be an issue.

I meant that the index was 8.5% and the active fund was 8.0%. I got it backwards above.

good point!
However the fact that you have to pay such high taxes on hedge funds, is something new for me.

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