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January 05, 2011

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Trying to beat the market with mutual funds seems silly to me. 80% of them don't beat the market. It seems to me that it is much easier to beat the market picking individual stocks than picking funds. If you aren't willing to do that, an index fund is the only way to go. The mutual funds get so big they just end up very similar to the index, and they cost more.

I view the creation of index funds a breakthrough for the middle-class investor. And I am no fan of non-index mutual funds.

But I do not get why many indexers feel a need to put down stock picking. I think that stock picking can be wonderful for the small percentage of investors who have the time and skill to do it well. I think indexing advocates overreach when they suggest that everyone should be indexing and only indexing.

Rob

It amazes me that intelligent people use the word "Market" as if there is an index fund somewhere that matches 'it', whatever 'it' is supposed to be.

The reality is that the term "Market" consists of scores of unique market sectors where a sector may be a particular industry, a particular country, or a subset of a larger sector. There is also the Bond market which is actually far larger than the stock market to consider. Let's also not forget markets that trade currencies, commodities etc., as well as all of the inverse funds and leveraged funds.

Beating the market with mutual funds doesn't seem silly to me. When I switched into conservative investing in 2007, I checked the performance of every mutual fund in the proprietary database that I subscribe to (about 11,00) over the period 1/1/93 until 12/31/2007 and there wasn't one mutual fund with an annual compound rate of return higher than what I was able to achieve. It's a lot easier to manage a few million dollars than it is several billion dollars which is what the really large funds have to manage. When they make a big move they change the market, whereas I never did.

i really amazad from this blog There is the Bond market which is actually far larger than the stock market to consider. Let's also not forget markets that trade currencies, commodities etc., as well as all of the inverse funds and leveraged funds.

As time passes after the crisis of 2008 index fund advocates will grow in numbers, why? It's great to do passive investing in a bull market like we've been experiencing since March 09. But just wait till the next major correction comes (believe me, it's coming). All major indices will be crushed again and only people with a tactical asset allocation will benefit.

Tony:
You are exactly right!
Let's take a look at the S&P 500 index.
For the last 3 calendar years (12/28/07 - 12/31/10) it has lost 14.94%.
For the last 10 calendar years (12/29/00 - 12/31/10) it has lost 4.74%.
This is why Buy and Hold investing is a reckless gamble in my opinion and it's especially true considering that the US economy, budget, and debt situation is nowhere near what it was ten years ago.

Outstanding. My retirement money is in DFA funds. I couldn't feel better about where my money is. I'm not going to gamble trying to time the market. I just need an X average return over an X time frame. Nothing more, nothing less. KISS principle in action here.

This is the ranking of the DFA funds for the year 2008.
I am glad that you liked their performance that year. I'm sure glad none of my money was with DFA or in any of the other index funds that took huge hits. I only made 2.6% in 2008 but it kept my 18 year winning streak alive and that's extremely important because of the enormous power of compounding money.
Do you realize that if you take a 50% hit on your portfolio you have to double your money just to get back even again.
I follow a different KISS principle from you - it's one where my Rule #1 is "DON'T LOSE MONEY" and my Rule #2 is "UNDERSTAND THE POWER OF COMPOUNDING".
My KISS principle works in all markets, yours will only work in very long term Bull Markets.
I wish you luck because you're going to need it.

Ranking on: 12/31/08 - Family: DFA
-------------------------------------------------
Symbol .................................................................................... Ann%
DFIGX DFA Intermediate-Gov Fixed Inc I .......................... 12.81
DFFGX DFA Five-Year Government-I ................................. 8.31
DGTSX DFA Global 25/75-I ................................................ -8.65
DGSIX DFA Global 60/40-I ............................................... -25.62
DFFVX DFA US Targeted Value I ................................... -33.63
DTMEX DFA Tax-Managed US Equity ........................... -35.38
DFTCX DFA INST:TA US Core Equity 2 ........................ -35.46
DFEOX DFA US Core Equity 1 I ..................................... -36.37
DFQTX DFA US Core Equity 2 I ...................................... -36.70
DFVEX DFA US Vector Equity I ...................................... -37.02
DFTSX DFA Tax-Managed US SmallCap ...................... -38.27
DGEIX DFA Global Equity-I .............................................. -39.82
DFMVX DFA Tax-Managed US Mktwide Value ............ -41.29
DTMMX DFA Tax-Managed US Mktwide Value ............ -41.41
DFIEX DFA International Core Equity I ............................ -43.83
DTMIX DFA Tax-Managed International Va..................... -44.20
DFCEX DFA Emerging Markets Core Equity................. -50.47
DFRSX DFA Asia Pacific SmallCap I ............................ -56.84

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