r2i forum

IMO, we have had these discussion on the previous R2I-MSN board a few times, in different disguises and my feeling is that we essentially have 2 camps of people:

1. Those that passionately believe in passive approach (index funds only).
2. Those that believe in active approach (this may be non-index funds only to the extent of having a CFA handle their investment who essentially choose funds that give them the best commission!).

I also believe that those that are passionate about 1 & 2 above will always put forth examples and quotations and data to justify their stand. That is fine, I am not interested in arguing with them, because............

I belong to a third camp. I believe that both index and non-index funds are good if one has the knowledge of the market and how it works. The understanding of how the market functions is a "work in progress" for me. The only constraints I have imposed is that I deal with only Vanguard and Fidelity since they have a good record of no-load funds. I could go with T.Row Price also, but have chosen not to.

Now, we are all in agreement that one needs to build an AAP. I am a believer in learning the basics. It does not mean that I am an expert, but, I learn something new everyday. I enjoy learning and I enjoy numbers. So, once I had decided to go with Vanguard & Fidelity and had learnt about AAP, I decided to study the funds available from these 2 MF companies. I know my risk tolerance level, time horizon, goals and learnt about diversification, management expense ratio's, no-load funds etc. One more important consideration I made - the fund managers and their track record. After they are human. I was able to put together a portfolio that consists of index funds and non-index funds at both places large cap, small gap, growth funds, value funds, international funds, emerging markets, sector funds and so on.

For example, my risk tolerance level is high. That's just me, I am comfortable with that.

Secondly, a goal of mine was to build the indices. Again that is a personal choice. I could not beat the indices over the long haul, if I went only with index funds.

Thirdly, a long term investment.

Fourthly, I am not completely convinced about DCA (we can have a separate thread just to discuss DCA). Just like 1 & 2 above there are those passionate about DCA and those that absolutely abhor the DCA concept - each to his own.

That in a nutshell is my approach. I am not going to tell people how they should do things. I will share only my approach. Investing is an individualistic journey. Friends, please remember, whenever I give a number (eg, my CAGR of entire portfolio is 16.5%), I am in no way trying to compare with anyone. I am happy with that return and one of my goals is to achieve CAGR of 17%.

Good luck to all of you and I hope you achieve all of your aspirations. If I can help in any small way I will.

Cheers

Nattusbs

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Admin note:
This thread born out of another thread:

Active Vs Passive Portfolio Management
http://www.r2iclubforums.com/clubvb/showthread.php?t=855&page=4

Posts related to Nattusbs portfolio are moved here. Members are encouraged to read both threads for continuity of discussion.

Admin
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IMO, we have had these discussion on the previous R2I-MSN board a few times, in different disguises and my feeling is that we essentially have 2 camps of people:

1. Those that passionately believe in passive approach (index funds only).
2. Those that believe in active approach (this may be non-index funds only to the extent of having a CFA handle their investment who essentially choose funds that give them the best commission!).

I also believe that those that are passionate about 1 & 2 above will always put forth examples and quotations and data to justify their stand. That is fine, I am not interested in arguing with them, because............

I belong to a third camp. I believe that both index and non-index funds are good if one has the knowledge of the market and how it works. The understanding of how the market functions is a "work in progress" for me. The only constraints I have imposed is that I deal with only Vanguard and Fidelity since they have a good record of no-load funds. I could go with T.Row Price also, but have chosen not to.

Now, we are all in agreement that one needs to build an AAP. I am a believer in learning the basics. It does not mean that I am an expert, but, I learn something new everyday. I enjoy learning and I enjoy numbers. So, once I had decided to go with Vanguard & Fidelity and had learnt about AAP, I decided to study the funds available from these 2 MF companies. I know my risk tolerance level, time horizon, goals and learnt about diversification, management expense ratio's, no-load funds etc. One more important consideration I made - the fund managers and their track record. After they are human. I was able to put together a portfolio that consists of index funds and non-index funds at both places large cap, small gap, growth funds, value funds, international funds, emerging markets, sector funds and so on.

For example, my risk tolerance level is high. That's just me, I am comfortable with that.

Secondly, a goal of mine was to build the indices. Again that is a personal choice. I could not beat the indices over the long haul, if I went only with index funds.

Thirdly, a long term investment.

Fourthly, I am not completely convinced about DCA (we can have a separate thread just to discuss DCA). Just like 1 & 2 above there are those passionate about DCA and those that absolutely abhor the DCA concept - each to his own.

That in a nutshell is my approach. I am not going to tell people how they should do things. I will share only my approach. Investing is an individualistic journey. Friends, please remember, whenever I give a number (eg, my CAGR of entire portfolio is 16.5%), I am in no way trying to compare with anyone. I am happy with that return and one of my goals is to achieve CAGR of 17%.

Good luck to all of you and I hope you achieve all of your aspirations. If I can help in any small way I will.

Cheers

Nattusbs

>>>Fourthly, I am not completely convinced about DCA (we can have a separate thread just to discuss DCA).

Nattusbs,

You surprise me everyday. First post about managed funds beating Index funds, and now doubting DCA. How do you invest if you have a lumpsum amount in cash? Do you just throw it one fine day or stand on the sideline for the Dow to touch 7000? It looks like you time the market. May be that is the reason for your Index beating return?

>>>That in a nutshell is my approach. I am not going to tell people how they should do things. I will share only my approach. Investing is an individualistic journey. Friends, please remember, whenever I give a number (eg, my CAGR of entire portfolio is 16.5%), I am in no way trying to compare with anyone. I am happy with that return and one of my goals is to achieve CAGR of 17%.

It would be interesting to see your return during a bear phase of the market. Let us know your return during 2000-2002 period. Not trying to question your strategy, but if you achieved comparable return during that period, may be it is time to rethink.

OldSpice2

Let us discuss about DCA in a new thread so that we keep it in focus.

No, I do not time the market.

Everytime I have changed jobs, I have taken the 401(k) and setup a mini-portfolio either at Vanguard or Fidelity keeping in mind my AAP, and other factors I have mentioned. So, I have no idea about how my investment has performed in the bear market of 2002-3, nor do I care, because my time horizon is long term. To me it does not matter what these blips do, or peaks for that matter.

Cheers

Nattusbs

Old-Spice2

>>First post about managed funds beating Index funds,

NOw, I do not recall writing about managed funds. I have Non-Index funds - btw, what is a managed fund?

Maybe, we need to put together a glossary of terminology as a master thread. For example, what does "beating the market" mean? Which market? The Dow 100? the S&P500? The Nasdaq 100?

As I have said earlier, I have both Index and Non-Index funds - to me they complement each other - to me this makes sense. I can therefore make a comparison in my own portfolio. Again, what is my goal? My goal is to achieve 17% CAGR for the ENTIRE portfolio. Some funds will give bigger returns than that and some will be lower. The market is cyclical across various sectors. That is where diversification becomes important - I believe I have achieved that too.

Another thing to remember, although I watch CNBC in the mornings while I get ready to go to work, I do not act on their "opinions" - because I have a plan and I am executing the plan. I do not move in and out of funds because I track them on a daily basis, (by updating the daily NAV that I receive by e-mail from Morning Star and input them every weekend). I see how each fund is performing, and if the entire portfolio is doing fine, then no worries. Just because a fund is hurting this week is not a reason to panic. Tomorrow is another day. I do not put all my eggs in one basket.

Enough said for now!

Cheers

Nattusbs

Chicago Desi

Thanks for reminding me about 401(K) mechanics! I know that it is DCA when one is contributing from every paycheck. Very often, not always, one has limited choice of funds in a 401(K).

I am talking about post 401(K) - when I have left the company and done a rollover IRA. Then it becomes a lump sum that I invest in a mini-portfolio either with Vanguard or Fidelity.

Cheers

Nattusbs

All

Here's my summary as of close of business, Feb 16, 2007.

Index funds make up approximately 14.6% of my portfolio.

In the time period of my investment the fund VFINX (which I do not own) had a CAGR of 2.4%.

Cheers

Nattusbs

PS: In all fairness, if you want to criticize anything in my portfolio - please feel free to do so, at the same time, please share your own portfolio.

Yes, CAGR should be the measure and not avg annual return.

But, Just measuring one fund performance of an AAP of an investor is like a S&P 500 fund manager measuring just MSFT performance out of his fund holdings.

What matters to the fund manager is overall holding performance and what matters to the individual investor is his overall asset allocation performance.

What is the big deal if VFINX has returned only 2.4% from 1998 till date. It is exactly doing what is designed to do.

Why VFINX is a target for your comparison ? Is it your benchmark for your portfolio return ? why isolate one fund performance in a bad period ?
Why did you pick 1998-2007 ? Why not take the performance of VEIEX, VGSIX over the same period ?