By Dr. James M. Dahle, WCI Founder
This post will be a bit of a “back to basics” post. I've written about mutual funds in the past, but it has been a long time and I've never done a post like this one. If you want to see some of the older stuff on mutual funds, check these out:
- Mutual Fund Expenses
- Why Vanguard?
- Avoid Actively Managed Mutual Funds
- Survival Bias- Another Great Reason to Invest In Index Funds
- Mutual Funds Versus ETFs
But today, I'm not going to give you a fish. I'm going to teach you how to fish. Mutual funds make up the majority of my investment portfolio and I think that should be the case for most investors out there. There are other ways to invest successfully, but they will require significantly more time and effort.
Building a Mutual Fund-Based Portfolio
Upsides and Downsides
Mutual funds have a number of sweet benefits you can't get by buying individual stocks, bonds, and properties. These include:
- Diversification – Buy thousands of securities in 10 seconds
- Pooled Costs – Share the costs of the fund with thousands of others
- Daily Liquidity – Buy or sell the entire investment any day the market is open
- Professional Management – Don't know what you're doing? No problem. Hire someone for cheap who does
- Automatic Reinvestment – While stocks often have DRIP programs, try doing that with a municipal bond or a duplex
Mutual funds have a few downsides as well, and in full disclosure they ought to be mentioned.
- Diversification – It works both ways, you (or the manager's) best ideas get diluted
- No Capital Loss Pass Through – While capital losses in the fund can be used to reduce the capital gains passed through, those tax losses that occur on individual securities in the fund won't find their way on to your tax return. You can be assured you'll get a capital gains distribution most years though, whether the fund makes money or not.
- Management Fees – While they can be very low, they often are not
- Loads and 12b-1 Fees- While you don't have to buy a fund with these fees, lots of investors do
- Manager Risk- The reason you hire a professional manager is because you recognize you're an idiot. But what if the manager is too?
What Mutual Funds Should You Buy?
This is a “back to basics” post, so let's make this real basic. If the name of your mutual fund does not have one or more of the following words in it:
- Vanguard
- DFA
- TSP
- Index
you probably shouldn't buy it. That doesn't mean that any fund with one of these words in it is a good fund, nor that every fund without one of these words is a bad fund, but it's a pretty darn good first screen.
What Are Acceptable Fees?
I've written before about mutual fund fees. There are a number of fees associated with mutual funds. Most of them you don't have to pay.
Expense Ratio: Don't pay one over 1% and try to keep it under 0.2%.
Load: Don't pay one at all. This is supposed to compensate your “advisor” for his advice. In reality, it's a commission for a commissioned salesman. Since the best funds don't charge loads, why would you pay extra to get a crummier fund? You wouldn't, unless you don't know. Now you know, and knowing is half the battle. And if you need advice, go to someone who sells advice (i.e. a fee-only, not fee-based planner/investment manager) not products.
12b-1 fee: Just like a load, this is an unnecessary fee. Since the best mutual funds don't have one, if the fund you're looking at has one, then you know it's a crummy mutual fund. It doesn't even matter what the theory behind 12b-1 fees was/is (the theory is BS anyway.)
Buy/Sell Fees: Some funds, including some of those at Vanguard, have buy and sell fees. It might be structured so you get hit with a sell fee only if you don't hold on to the fund for a period of time like 6 months or 5 years. Try to avoid these as much as possible. If you are really, really interested in the fund/asset class and are committed to it for a long time and the fee is low, then maybe it's okay to pay.
What About ETFs?
Exchange Traded Funds are just mutual funds that you can buy and sell during the day instead of at 4:00 pm. They're not necessarily good or bad, just slightly different. They are certainly a little more complicated to use, so have a good reason (such as lower overall expenses) to use an ETF over a mutual fund.
Actively Managed vs. Index Funds
I love it when people call the frequently seen argument about active management a “debate.” It's not a debate and if it ever was, it was over a decade or two ago. An actively managed mutual fund has a manager who tries to buy the good securities and avoid the bad ones. A passively managed mutual fund has a manager (mostly a computer) who just buys all the securities and keeps costs as low as possible. It turns out that it is very hard for a mutual fund manager to add enough value to overcome the costs of active management over the long run, especially in a taxable account. In fact, it is so hard that an individual investor even bothering to choose an active manager is probably making a mistake. The data, which I don't have room to recount here, is pretty overwhelming. So at least until you know something, stick with passive (index) mutual funds. Chances are once you do know something that you won't change your strategy and you'll be glad you started with it. And you'll probably send me a nice thank-you email in a few years and I like those.
Which Mutual Funds Should I Invest In?
Okay, you got the message and you're looking for an appropriately risky mix of low-cost, passively-managed, broadly diversified index mutual funds mostly from Vanguard. But then you go to the Vanguard site and it's overwhelming. I mean “there are eight money market funds, and I don't even know what money market funds are.” There are 37 bond funds. And dozens and dozens of index funds. Too many choices lead to paralysis by analysis. I was in a restaurant recently and I was handed a menu. There were three options on it. That was awesome. I think all menus should be like that. The happiness literature tells us that we like to have choices and feel in control, but that the fewer choices we have, the happier we'll be. So let me try to simplify things a bit.
We're going to work our way down the entire page listing the Vanguard mutual funds by asset class. (Remember “asset class” is the type of investment the mutual fund invests in.) By the way, this is one of the most important pages of the internet for a Do-It-Yourself investor. If you don't have an investment advisor, you should know it like the back of your hand.
Money Market Funds
Okay, let's walk through this. First, what's a money market fund? Well, it's basically a bank account. There are some subtle differences, but not enough that you really need to spend a lot of time on them. Basically money market funds make very short term loans to companies and federal, state, and local governments. In return, they are paid interest. After paying their expenses, whatever interest is left over is paid to you. They are very safe investments in that you are unlikely to lose money in them. But don't expect to make much. In fact, for the last 5-8 years, you've made less than the rate of inflation in money market funds. As you can see, there are two types of money market funds. There are “taxable” ones and “tax-exempt” ones. The tax-exempt ones are like municipal bonds. You're loaning money to state and local governments. In order to incentivize you to do so, you get a federal tax break and maybe a state and local tax break on the interest. So as you might expect, the interest on these is generally lower than on a taxable fund, but if you're in a high tax bracket, you may come out ahead after tax even with that lower interest payment.
As we move left to right here, we see the name of the fund, the ticker symbol (ignore this), the expense ratio (never ignore these, but if you're on the Vanguard site, they're all pretty low), and then we come to the price of the shares. In a money market fund, the price is always $1.00. The next two columns give you the change in the share price yesterday, both in dollar terms and percentage terms. Since the price of a money market fund is zero, that should also always be zero. The next column is important. This shows you the yield on the mutual fund. Remember that yield is not return for most mutual funds, but for a money market fund (and a bank account) they are essentially interchangeable. Finally, we come to the “return” figures. Remember that it is not wise to choose a mutual fund primarily based on past returns, but it is a good idea to have some idea of what you can expect from this mutual fund in a given economic environment. The first column is the year to date return (interesting, but not very useful) and then Vanguard publishes the 1 year, 5 year, 10 year, and “since inception” return. As you can see, the last decade has not been kind to money market funds but the “since inception” numbers and dates tell you that things were not always like this.
Bond Funds
Okay, let's move on to bonds. Remember a bond is a loan to someone, but it's a longer loan than the ones that go in a money market fund. Because of this, bond funds can't keep the share price at $1.00. As Jack Bogle has said, you can have stable principal or you can have stable yield, but you can't have both. With a bond, you get a stable yield and a variable principal (unless held to term). With a money market fund, you get a stable principle, but a variable yield. However, when you throw a bunch of bonds into a bond fund, the yield is only kind of stable, especially with economic fluctuations.
Let's go down the left-hand column first. Luckily, at Vanguard the names of the funds actually tell you what they're invested in. At other mutual fund companies, you might actually have to read the prospectus to get that information. No wonder everyone is pulling their assets from other mutual fund companies and sending them to Vanguard. At any rate, the first fund is GNMA. Ginnie Mae is a semi-government agency that does mortgages. So the bonds in this fund are loans to homeowners. You're buying mortgages. Where does the money go when you pay your mortgage? It doesn't go to the bank. They sold your mortgage to someone like this fund two weeks after you got it. So when people pay on the mortgages you own through this mutual fund, you make money. When they don't pay, well, you don't make money.The next fund is “Inflation Protected Securities.” That means Treasury Inflation Protected Securities, or TIPS. These are bonds whose value is indexed to inflation. This is one of my favorite funds and one I've owned for years. The next fund is Intermediate Term Bond Index Admiral Shares. That means it invests in all types of bonds that are of an intermediate duration and uses an index fund strategy. It buys both corporate (loans to Ford and Apple) bonds and government bonds (treasuries.) This fund doesn't hold GNMA bonds. The “admiral” means you have to put at least $10K into it. If you don't have $10K, you have to buy the “investor” shares, which have a slightly higher expense ratio and usually a $3K minimum. I also like this fund and use it in my parent's portfolio. The next fund is just like it, except no corporates. The fifth fund down doesn't have the word “index” in it. It is actively managed and invests only in treasury bonds. Luckily, even the actively managed bond funds at Vanguard act like index funds so there isn't a bad fund on this list.
Moving left to right, we see some various expense ratio, prices that aren't stable (but really don't move much, I mean, you can handle swings of 0.27% per day, which are actually pretty big for a bond fund,) and higher yields and returns than you see from money market funds. Be aware the TIPS fund yield is a “real” (i.e. after-inflation) yield. If it was a nominal yield, you would be better off putting money in your mattress than investing in that.
As you scroll down the page you will also notice there are corporate bonds funds (guess what they invest in) and tax-exempt bonds funds (just like the tax-exempt money market funds.) In the interest of time, we'll skip through all that and get to the Balanced Fund Section.
Balanced Funds
What is a balanced fund? It invests in both stocks and bonds at varying ratios depending on the strategy. Why might you want to use one? Mostly to keep things simple. You only have to own one fund and you get to own all kinds of assets all over the world without any hassle. I use them (okay, one of them) for things like my kids' Roth IRAs. Vanguard has a number of different types of balanced funds. The Target Retirement funds are supposed to be chosen by your retirement date. The further you are out from retirement, the more aggressive the fund is (i.e. more stocks, fewer bonds.) Then the fund gradually becomes less aggressive as the years go by. The Target Risk funds are also contain a reasonable mix of stocks and bonds, but they don't become less aggressive as time goes by. They just stay the same. Then there are more traditional balanced funds, including both index funds and some of Vanguard's most successful actively managed funds. Finally, there is the managed payout fund, which tries to keep a constant “pay-out” despite wildly fluctuating asset values. That's kind of fun to watch to see if Vanguard can do it, but I wouldn't actually invest in it.
Stock Funds
Now let's move on to a more exciting part of the portfolio- the stocks! Remember when you own a stock you own a tiny piece of a real, live company with real, live customers. When they make money, you make money. When they lose money, you lose money. In the short run, there is also an impressive speculative component, but in the long run, you're just buying a piece of a (hopefully) profitable enterprise. First we see US Large Cap Stock (or Equity) Mutual Funds. Dave Ramsey (and other people who were investing in the 90s) calls these Growth and Income funds. You'll notice Vanguard has a couple dozen of these. Which one should you invest in? This one.
That was easy, wasn't it? It is also a good example of why you shouldn't choose a fund based on performance since inception. As you scan down that list, you'll see funds with very different inception dates, and the date has more to do with the return since inception than anything the mutual fund actually does or has control over. But moving left to right, you'll see slight changes in the asset class column. Some funds invest in Large Cap Growth stocks, some invest in Large Cap Value stocks, and most invest in Large Cap Blend (growth and value) stocks. You can also see the difference in expenses between an index fund and an actively managed fund. Even at Vanguard, you can see an 8-fold difference in expense ratio. That is not easy for a manager to overcome. Stock funds have yield too, although instead of coming from a bond coupon, they come from stock dividends, and thus aren't nearly as stable. You'll also notice that returns, particularly for the last few years, are dramatically higher for stock funds than balanced, bond, and money market funds.
As you scroll down, you'll come to Mid Cap stock funds (Dave Ramsey calls these “Growth” funds) and Small Cap stock funds (“Aggressive Growth.”) “Cap” means market capitalization, or the size of the stock. Large caps are companies you've heard of (Amazon, Exxon) and small caps are companies you've never heard of. Then you move into international funds.
International Funds
Remember this section includes both stock funds and mutual funds, but again, the names are descriptive. Developed Markets include mostly Europe, Australia, and Japan. Emerging markets are places like Brazil, Russia, India, China, most of the Pacific Rim, and most of Central and South America. The best thing for most investors to do is scroll to the bottom of this section and look at the two “Total International” funds. The first buys all the bonds in the world outside of the US and the other buys all the stocks in the world outside the US. I've been using the Total International Stock Index fund for more than a decade in my portfolio.
Global Funds
The next section down is for “Global” stock funds. There is an important bit of terminology here. When it comes to investing, “International” means outside the US and “Global” means the entire world including the US. These funds are all a bit small and a bit expensive. I've never invested in any of them. The Total World Stock Index has potential, but still hasn't caught on much after almost a decade. You can buy its components cheaper separately.
Finally, we get to the bottom. If you want to invest at Vanguard, but still want some excitement in your life, this is your place. Why buy a diversified portfolio of stocks when you can get a concentrated one? If you learned something in the previous 3000 words of this post, you have no business buying any of these funds. That said, I've owned all of them at one point or another and they're a lot of fun. I mean, look at Energy, 33% last year alone! And Precious Metals, 76% last year! Whoohooo! (And I owned both of them last year- bragging rights for cocktail parties.) Guess what? They go down just as fast. In fact, precious metals still has a markedly negative return over the last 10 years. Health Care is one of Vanguard's long-term successes in active management. But they had a pretty rough year last year, underperforming the overall market by 10%. Lots of people hold a little slice of REITs in their portfolio in hopes that they will act differently from other stocks due to the slightly different structure. I lost 78% of my money in that fund in the 2008 bear market. Use extreme caution with any of these four funds, even if they do have the word Vanguard in their name. You should not have a large portion of your portfolio in any of them.
Prospectus
As you can see, this page alone gives you a lot of information about a mutual fund once you know how to read it. You can get even more information from the Prospectus and Annual Report, which I also recommend you at least skim. In fact, let's look at one now. Just click on a mutual fund link. Let's do the REIT Index Admiral Fund for convenience. It'll take you here:
This is the fund page. It gives you even more information about the fund including what it invests in, what the fees are, what the past performance is etc. If you want even more information, click on “View Prospectus and Reports.” Then read the prospectus. There's a short version (8 pages) and a long version (53 pages.) The short version is probably good enough. I would concentrate on these sections:
Tons of interesting information on the 2nd page. First, you learn what it invests in. Unsurprisingly, it invests the entire fund in Real Estate Investment Trusts. You also learn the strategy- it tries to track the performance of an index. In other words, it just buys all the publicly traded REITs.
The fee section is also interesting. Well, maybe not for Vanguard funds, but when you compare it to another fund. You see there are no loads, purchase fees, sales fees, redemption fees, account services fees (I know, it says $20 but that gets waived if you opt for electronic communications or if you have more than $10K in the fund), or 12b-1 fees. The expense ratio is a low, low 0.12%. Just for fun, let's look at a similar page from the prospectus of another mutual fund. How about the Alger Capital Appreciation Fund Class A. It's page looks like this:
They have an investment objective too. But it's so friggin' vague you have no idea what they're doing. And check out those fees. Wow! Let's start with the 5.25% load. Yup, that's money right out of your pocket. Give your commissioned salesman $1000 to invest, and he takes $52.50, puts it in his pocket and invests $947.50. That's going to take a little while to recover from. Oh wait, there's more. Not only do you get to pay a “front-load” but you also get to pay a 1% back-load. I love the little extra kicker there- if the share value goes down, you pay a back load off what it used to be, not what it actually is at the time of sale. The ER is 0.79%, or approximately 16 times as high as a Vanguard Index Fund. But wait, there's more. You can also pay a 12b-1 fee of 0.25-1%. And “other expenses” of 0.19%, whatever the heck those are. All in, you're looking at 1.23% for the front-loaded shares. But wait, there's more. Look at all those asterisks and fine print at the bottom! I'm not saying this fund sucks and you should avoid it….actually, that is what I'm saying. Given those high fees, you won't be surprised to learn its recent performance was kind of crummy too. Last year, while the US stock market generated returns of 12.94%, this fund LOST MONEY. A LOT OF MONEY. -4.94%. That sucks and it certainly doesn't sound like “capital appreciation” to me. Why are people still investing with those chumps? Because they've never read a blog post like this one.
Okay, let's go back to the Vanguard prospectus.
This section is pretty important. It talks about the risks you're running in this fund. Let's just say it is a risky fund, but you should read and understand all of these before buying the fund. There is a reason the government requires them to tell you this.
This is also a really useful page. It may give you some idea of what to expect in the fund. You'll notice it has had some huge losses, such as in 2007 and 2008. -37.05% doesn't sound too bad, right? But wait. Didn't I say I lost 78% of my money in this fund in that bear market? Yes I did. Bear in mind that performance data reported for the calendar years will down play what you will feel as an investor. You feel the peak to trough drop (and trough to peak rise), not the calendar year drop. Notice how few years there are with returns of 5-10%, which is what you expect the long-term return to be. Most years are big losses or big gains. That tells you it's a risky fund.
Check out the tax data too. These are also mandatory disclosures. Notice the difference between the 10 year pre-tax return of 7.44% and the post-tax return (assuming maximum tax brackets) of 5.40%. That's a fairly tax-inefficient fund to lose 27% of its return to taxes. Compare those numbers to a more tax-efficient fund, like the Vanguard Total Stock Market Index Fund
which lost just 19% to taxes or a really tax-efficient fund like the Vanguard Intermediate Term Tax Exempt Bond Fund
which only lost 3% to taxes.
Morningstar
Vanguard is pretty good at putting lots of very useful information on their website and in their prospectuses and reports. Probably because they don't have much to be ashamed of. But if you're looking up a mutual fund somewhere else, you may find it a little tougher to get the information you seek. Or you might just want more detail. In those cases, you can go to Morningstar, which provides all kinds of mutual fund information. There is some information behind a paywall, but everything you really want is in front of it. Let's take a look at that Vanguard REIT Index fund there.
Most of the good stuff is under the “Performance,” “Portfolio,” and “Expense” tabs and is summarized at the bottom of the front page.
This tells you what it is invested in (100% stocks, remember REITS are a type of stock) and mostly small to medium slightly growthy stocks.
At the bottom, you can see all of the money is invested in the real estate sector (no surprise there) and that their top holdings are all big real estate companies, some of which you might have even heard of. It is a fairly concentrated fund, with over 20% invested in just the top five holdings. The comparative performance data is also pretty useful. Look at the long-term % rank in category near the bottom. Over 5-10 years, this fund has outperformed 80-83% of the other funds in its category. That's pretty typical for an index fund. Despite whooping up on 4 out of 5 funds for a decade, Morningstar only gives it 3 out of 5 stars. That's another good point- when you go to Morningstar, you're looking for 3-4 star funds. 1-2 star funds tend to stay 1-2 star funds, but 5 star ratings do not predict future performance. Steady eddies are what you want.
This post is way too long already, but I hope it has been educational. You can learn a lot about mutual funds without ever reading an investment book if you just know where to look on the internet and what you're looking for.
What do you think? How did you learn about mutual funds? What do you think a beginning investor needs to know? Do you invest in mutual funds? Why or why not? Comment below!
I desperately want to earn more than the passive index funds will deliver. But alas, the White Coat Investor tells me that is unlikely. I will go on earning the same measly returns those passive index funds deliver.
Cheers!
-PoF
Thank you for another excellent post. It is sure to be a “reference” post that readers will return to over and over again. I think I originally found your blog because of your ‘100 Portfolios’ article (which I still re-read from time to time). I expect you’ll see similar results from this article. Congratulations and good job!
Glad you liked it. I definitely saw the need for this one.
The key POF is to increase the size of your accounts and voila you earn more. I think this is a good post to explain how to look at Vanguards website and pick your funds. I wish he had analyzed the slice and dice funds but for those who started investing recently this is not necessary. By slice and dice I mean dividing your portfolio into small cap value, etc. I have most of my stuff at Vanguard and I like the personal performance page and the portfolio analysis tool. Once you accumulate a nest egg it starts to earn some real money that you have to reinvest. My taxable account paid me 30k last month. It tends to pay more quarterly but there is income every month. Any way I use the portfolio analysis tool to see what to do with it. I split it between VTIAX and VWIUX last month. International and intermediate munis. I check the analysis tool and see what is out of alignment and rebalance.
$30K in quarterly dividends is a heck of a taxable account. At a 2% yield, that’s like $6 Million bucks. I suspect most docs would hit FI long before their taxable account gets anywhere near there. And you’re not even selling shares. Pretty nice position to be in. Nice work.
thanks
I have been reading your posts since having read your book a couple of years ago. This is your best post.
I have been a DIY white coat type investor since my second year in residency when I opened an IRA using a Vanguard index fund.
GREAT GREAT POST and I as you LOVE Vanguard and thanks as well to Mr Bogle
I am still an advocate of individual munis versus their muni bond fund
I didn’t expect you would have changed your mind since yesterday. 🙂
GREAT POST!! I’ve been looking for a nice summary to introduce my 16 yo twins to investing, and this is the best synopsis out there. A great introduction for someone just starting out. Thank you for another brilliant article!
I like this primer very much. I was considering writing one myself. I know you wanted to keep it short and simple, which is very tough to do, esp since n00bs are definitely prone to paralysis by analysis. Some people try to get into α, β, Sharpe, Treynor, etc…which as you know is p much irrelevant to indexers given all that matters there is r². I like how you specifically mentioned to avoid going down the rabbit hole of Morningstar’s star ratings, such as “why would I buy VGSIX if it’s only 3 stars? This other one (with a load, 1.5% ER, etc) is 5!”
…and my principles dictate that I have to remind you that the initial investment is called “Principal.” C’mon, man. (sorry)
Did I do that again? Actually, this post was probably written prior to the last time I was corrected.
That is a deep and thorough review of investing. Nicely done. Particularly with going over expenses and prospectus forms. These were the most intimidating items to me when I started. Keep it simple is still the best way to go. Stick with Vangaurd. Stick with Admiral shares if you can. Consider a 3 fund portfolio. Done. Then let it ride and check in once a year to reallocate the funds.
if it interests you look at the turnover ratio of some active funds; some are greater than 100%
While I definitely agree that most mutual funds are too highly correlated to the market (beta of around 1) to warrant higher fees than an index fund would offer. I think people are selling themselves short if they at least don’t open their mind to paying a little bit more for funds that low risk and low volatility. There are a handful of funds out there called private wealth management funds that have betas of .25-.5, but they cost a little bit more. While we watched the market drop 45%, some of these funds stayed flat in 2008 and 2009 and others actually made money those years. If you avoid the 40% drop, the returns usually take care of themselves. http://www.ultratrust.com/Top-Growth-Stock-Mutual-Funds-to-Invest-in-Over-10-Year-Horizon.html
I don’t know if I’ve bought into the low-risk/low-volatility factor yet, despite just reading an entire book about it. Backtested data has significant limitations. At any rate, it’s always a bit of a gamble to give up low costs in search of an elusive factor, whether it is small, value, momentum, low-vol or whatever. Maybe it works out, maybe it doesn’t. But the record for active management in publicly traded equities is not good, and in my view, not a gamble worth taking.
You mean like “smart-beta” type stuff, similar to what some of the new robos like Wealthfront, Betterment, etc are doing? Fido has a whole “smart-beta” ETF section which they call “Factor ETS” https://www.fidelity.com/etfs/factor-etfs which a pretty low cost; FDLO in particular has an ER of 0.29%. I’m not sure how I feel about them yet.
I don’t know either. I have a moderate tilt to small and value, but these four newer factors? Haven’t touched them yet. Really not sure how many of these will exist going forward after costs, even in the long run. Back-tested data is so unreliable, and we don’t even have that much of it. The issue is if you tilt you need to really believe, because if it exists, it’ll only do so in the very long run.
Your tilt to small cap and value stocks is, I’m sure, directed specifically at Dimensional Fund Advisors (DFA) which is predicated on the tremendous academic research of Eugene Fama and Ken French.
On the other hand, “Smart-beta” funds seem (to me) to be more like really good marketing ideas (“Look! Look! See how well this has worked in the past!”, (aka “back-testing”) rather than really sound (and, by the way, proven in the real world) investment theories a la Fama and French with small cap and value stocks.
Agreed: Vanguard is excellent at providing low cost indexes that track the S&P 500 and the total US stock (and bond) markets. But they are also very good a picking active fund managers and driving down costs.
I’ve never invested in an index fund.
I have, however, been a Vanguard investor for over 35 years. During my asset accumulation phase (starting in the mid-1980s), I invested in PRIMECAP, which consistently beat “the market”. See Bogle’s write up here: http://johncbogle.com/wordpress/wp-content/uploads/2015/12/PRIMECAP-30th-Anniversary.pdf
About five years before retiring, I moved from PRIMECAP to Wellington Fund with no regrets. My investment objective had change from “growth” with PRIMECAP to “growing my income over time” with Wellington.
I like balanced funds for growing income over time and Wellington has met that objective just fine. I think dividend paying stocks and high quality short/intermediate bonds make sense for me in retirement. Vanguard Wellington does those things (actively buying mostly dividend paying stocks and high quality shot/intermediate bonds) just fine, in my opinion. See Bogle’s “Reflections on Wellington’s 75th Birthday” here: https://www.vanguard.com/bogle_site/sp2004wellingtonbth.html
Wellington Admiral has an expense ratio of about 16 bps (yeah…4 times Vanguard’s ER for the 500 Index Admiral, but well worth it, in my opinion). Wellington’s bond portfolio has a duration of about 6 and a half years. The yield is about 2.5%. Until RMD at 70.5, I’m fine taking the quarterly dividend as a distribution to cover expenses (way, way, way short of $30k for sure) and reinvest the capital gains.
Successful investing includes knowing what your goal/objective is, really understanding the risk (think mean return and standard deviation), knowing yourself*, and then buying low cost funds (maybe one fund will do) appropriately. That might mean buying a 500 index fund or it might mean buying an actively managed fund like PRIMECAP or Wellington.
*If you have a two-sentence written investment policy statement, you are well on your way to “knowing yourself”.
Vanguard is very good at providing both both passive/index funds and actively managed funds at extremely low cost.
And it turns out low-cost matters more than index v active. Active management has a much better chance of working when costs are low.
As far as the various factors, I don’t know that momentum, quality, volatility et al have the same amount of data as small and value. It’s getting to the point where there are too many to keep track of. Not sure small or value is the best, they just happened to be recognized first. But I’ve found it’s best to invest like an aircraft carrier/cruise ship- no big sudden changes. There’s no rush to add a factor to a portfolio.
It is not just theory and not based on back data biases. I actually witnessed it.
And if I did not see our funds stay flat or make positive returns in 2008 and 2009 because they either went to cash or went short within 10% of the top, and then turn around and go long within 10% of the bottoms, I would be as skeptical as you are. All of our funds have been through the 2008/9 debacle and thrived.
Congratulations Rocco Beatrice!
All your funds perfectly (I’d say) timed the 2008-9 market by going to cash (or going short) on time AND, getting back in on time. The S&P 500 was down about 36% in 2008 and back up about 25% in 2009.
We’ve had pretty much a bull stock market since 2009; have all your funds remained “long” since getting back in?
I’m delightedly that your experience with the 2008-09 financial debacle was fantastic. Nevertheless, from what I’ve read (to mention just one source, William Bernstein’s be it his “The Intelligent Asset Allocator”, or his “The Investor’s Manifesto” and or his “The Four Pillars of Investing”) I remain skeptical that over the long term, timing the market (get out near the top and getting back in near the bottom) is a reasonable expectation. Therefore, I remain skeptical (and “balanced” via Vanguard Wellington).
I hope that whenever we are within ten percent of the next market top, your funds go to cash or go short (if they haven’t already) and when the market is next within ten percent of the next bottom, they have returned to being fully invested.
Let’s check in on your selected funds in 10 years and see how they did (if they still exist.) Based on your link it looks like you’re talking about nasdx, parwx, focpx, specx, usnqx. pretty tech heavy bunch there. Forgive my skepticism. It’s not impossible to beat the market, but it’s awfully tough to identify who is going to do it in advance and using past performance doesn’t seem to be a good way to do it.
On July 3 at 9:11 am MST Rocco Beatrice wrote:
“I think people are selling themselves short if they at least don’t open their mind to paying a little bit more for funds that low risk and low volatility. There are a handful of funds out there called private wealth management funds that have betas of .25-.5, but they cost a little bit more. While we watched the market drop 45%, some of these funds stayed flat in 2008 and 2009 and others actually made money those years.”
I went to Rocco’s website and saw ten or so funds listed. I looked up performance for four of these funds to see how they did during 2008 and 2009 — did they stay flat in those years or actually make money.
Here is what I found:
Parnasssus PARWX
2008 -29.94%
2009 62.13%
Fidelity OTC
2008 -45.98%
2009 62.24%
Alger Spectra
2008 -43.19%
2009 56.52%
USAA Nasdaq
2008 -42.02
2009 53.48%
Low risk? Low volatility? Me thinkith not.
On July 8 at 8:20 an MST Rocco posted:
“And if I did not see our funds stay flat or make positive returns in 2008 and 2009 because they either went to cash or went short within 10% of the top, and then turn around and go long within 10% of the bottoms, I would be as skeptical as you are. All of our funds have been through the 2008/9 debacle and thrived.”
If $1000 was invested in say Fidelity OTC at the beginning of 2008, by the end of that year, there would be $540. By the end of 2009, it would be back up to $876.
Parnassus PARWX did better. If $1000 was invested at the beginning of 2008, it would have dropped to $770 by the end of the year and then would be up to $1250 by the end of 2009.
I remain skeptical.
To me, these funds are just very aggressively managed in their stock picking and largely avoid the S&P 500 stocks. But they didn’t go to cash or short the market near the top and then went long shortly after the market bottomed out. So, I’m confused by Rocco’s posts.
Nothing wrong with aggressive stock picking in an attempt to beat the market, especially early during the accumulation phase (if one has the tolerance for volatility). However, given the sequence of return risk, this kind of aggressive investing is not my cup of tea close to or in retirement.
Dave and WCI,
It appears that your attention to detail is waning quite a bit. If you actually READ THE ARTICLE, which you obviously have not done, you will see that we compare our funds to the funds you are trashing that kiplinger states are the best performing funds through the 10 years period at the time of the article was written.
Here is a list: If someone is interested they can reach out to me.
2008 2009
Fund 1 28.5% 24.8
Fund 2 12.1% 21.7
Fund 3 21.4% 13.1
Fund 4 18.1% 9.4
Fund 5 1.6% 38.5
Fund 6 1.1% 33.08
Fund 7 8.0% 46.1
Fund 8 46.6% 21.3
Fund 9 -1.3% 38.1
Fund 10 26.9% 19.9
Fund 11 17.5% 17.68
Fund 12 0.5% 91.6
Fund 13 18.4% 18.7
Fund 14 59.5% 10.4
Fund 15 -12.4% 43.3
This might surprise you but my day also consists of 24 hours as well. I can’t read the entirety of every link posted on this >1000 page website.
The main purpose of your last few comments appears to be solicitation of business, which is not permitted.
It would appear that all 15 of your company’s “private fund” managers are smarter than the thousands of mutual fund managers with verifiable, audited performance records. If so, chapeau to them (and you.) But forgive my skepticism when instead of posting links to your audited returns (and a list of your funds that have closed in the last decade) you post a link to an article “about the funds you compare your funds to” while at the same time soliciting business.
I absolutely am NOT soliciting business as can be seen from my original post. I’m just trying to share the other side of the coin. But when people spread misinformation because they failed to read, I am forced to respond. I am in TOTAL agreement with your point of view. Fees are important part of a decision to select a fund, but they are only an issue in the absence of value. Why is there 3 Trillion dollars invested by “smart” money in hedge funds that charge 2% +20% of profits? These millionaires are just stupid? Or is there something more there?
You weren’t soliciting business. Really? You’re really going to attempt to claim that? Really? Let’s take a look at the evidence.
Exhibit A: Every comment you’ve ever left on this website includes a link to your website. The link to this comment for instance is to a page on your site labeled “top growth stock mutual funds.”
Exhibit B: “There are a handful of funds out there called private wealth management funds…..they cost a little bit more….the returns usually take care of themselves. http://www.ultratrust.com/Top-Growth-Stock-Mutual-Funds-to-Invest-in-Over-10-Year-Horizon.html”
Classic sales: First the tease, then the link to follow.
Exhibit C: “Here is a list….If someone is interested they can reach out to me.” So…, what exactly does soliciting business look like to you other than “if you’re interested, reach out to me?”
At any rate, yes, a great deal of the money in funds that charge 2 and 20 is not smart. Hedge fund returns, when actually looked at en masse, are even more disappointing than actively managed mutual funds.
http://www.etf.com/sections/index-investor-corner/swedroe-13?nopaging=1
http://www.etf.com/sections/index-investor-corner/swedroe-problems-hedge-funds?nopaging=1
https://www.usatoday.com/story/opinion/2017/04/03/warren-buffett-vs-hedge-funds-editorials-debates/99545182/
Excellent post for newbies and experienced investors alike. Good point about trying to qualify for Admiral shares to further decrease expenses. I’ve also invested in the dividend growth fund but it’s closed to new investors.
what would happen if everyone indexed
lots of wall streeters would be looking for jobs
it’s already happening. index funds and etfs are supposed to track the market. however, it is becoming the market. Even Jack Bogle admits that everyone can’t index.
He said in May, “If everybody indexed, the only word you could use is chaos, catastrophe.”
The question isn’t “what if everyone indexed” because that’s not realistic. As more and more indexed, the markets would become less efficient and there would be opportunities for successful, cost-effective active management again. The question is what percentage of shares need to be owned by non-index funds to keep the markets efficient enough that indexing is the right strategy for you and me. I think that percentage is very low, certainly much lower than the percentage is currently. I’d guess 5%. So 5% can fight over the alpha and the other 95% of us can go along for the ride, piggybacking off the efficiency they create.
do you think market is efficient right now? Investment firm Sanford Bernstein showed in May that more than 50% of all equity (stock) assets in the U.S. will be passively indexed in just a few months!
Half of all money in U.S. stocks will be priced just flowing into the indexes.
No financial analysis. No assessment of the company’s business model. No consideration of whether the CEO is smart or a buffoon.
It doesn’t even matter if the company is making or losing money!!!
If it’s in the index, just buy it!
think of it this way:
If you told everyone to buy the same set of stocks, in the exact same percentages.
And then 50% of all the money in the U.S. market did exactly that.
Don’t you think that portfolio (the index) would do better than everything else?
Because everyone and their mother is buying it!
What happens when they stop buying?
Yes, I think the market is efficient enough that indexing is the right way for me to invest. No. I don’t think that 50% is enough to screw up the markets. I think it’s got to be much higher.
Indexers are piggy-backing off the work of active managers. The vast majority of us can get a free ride with only a tiny minority “doing the work” of analyzing the companies to keep the pricing reasonable.
that’s not how it is playing out in practice…the number of funds beating the market since 2014 has dropped off considerably. a recent study showed just a 1% increase in ETF ownership of a stock resulted in 13% less correlation to earnings changes of that stock. if stock price aren’t following earnings, what are they following? the answer is that stock prices are rising on the “dumb bid” of huge amount of money flowing into index funds and ETFs….when the supply of money coming out of active funds is exhausted, this bubble will burst
What do you mean “1% increase in ETF ownership?” I don’t care how many ETFs own a stock. The index funds I’m talking about already own all the stocks. The vast majority of ETFs out there are not broad-based index funds.
While stock prices may decline precipitously at any time, I don’t think the fact that more and more investors have realized the emperor has no clothes is creating some kind of a weird “index fund bubble.” If the index funds I invest in “pop”, the whole market is going to decline in value.
But let’s talk about your theory for a minute. The fact that lots of people own index funds is causing some bubble that is going to burst. How do you intend to invest in stocks that aren’t in the index funds I own and recommend? Or are you saying people should invest in something besides stocks instead? If so, what? Bonds? Cash? Gold? Real estate? Commodities? Bitcoin? Time to put your recommendations on here with a timestamp where you can either later point to your successful forecasting, or where future readers will be assured your ability to predict the future is no better than the rest of ours.
As far as your first statistic about fewer funds beating the market over the last 3 years, that’s typical in a bull market. It’s due to cash drag and the fact that many actively managed funds aren’t as pure in investing in an asset class as an index fund.
since we are both physicians, I encourage you to be more informed. I find you very influential. Knowledge can take you to further. Here’s some papers written by top finance academics showing the big problems with indexing and ETFs (Google them and see!):
-Indexing and Stock Price Efficiency by Nan Qin and Vijay Singal
-Index Funds and Stock Market Growth by William N. Goetzmann & Massimo Massa
-On The Economic Consequences of Index-Linked Investing by Jeffrey Wurgler
-Why the Math Behind Passive Investing May Be Wrong by Wesley Gray, Wall Street Journal, Nov. 6, 2016
-The Mysterious Growing Value of S&P 500 Membership by Randall Morck and Fan Yang
this is my explanation on inefficiency of the market.
https://www.bloomberg.com/news/articles/2017-04-19/etfs-seen-creating-market-that-s-both-mindless-and-too-expensive
Since you challenge me to make a prediction, sure, I’ll take it. My current Tbills will outperform S&P500 in the next 5 years. I believe in equities- at the proper price, not blind investing. To say that 5% of market in active management is enough to make the market efficient is just preposterous.
Why do you think more than 5% is needed? What percentage do you think is needed? Clearly you don’t need 90%. In fact, prices in the market are set by those who are trading, not those who are buy and holding for decades. Price efficiency doesn’t depend a bit on those who are holding their shares, only on those who are interested in buying and selling that day. They’re the ones who set the price. Since traders, analysts, active managers etc are going to trade far more often than people blindly buy and holding index funds for decades, their influence on efficiency will be outsized. So 5% might be 75% of the trades. Right now something like 10% of the market is in index funds.
https://www.quora.com/What-fraction-of-US-equities-are-held-by-index-funds-measured-in-market-value
https://www.quora.com/What-percentage-of-the-market-value-for-S-P-500-companies-is-owned-by-index-funds-and-ETFs-passive-investments-1
To argue that is going to cause a problem I should change my asset allocation and investing style for is preposterous. I have no idea (nor do I care) if T bills outperform the S&P 500 in the next 5 years since nothing I’m investing right now is needed in the next five years. But I’m certainly not changing my written investing plan that has served me so well based on the worries of a few writers, most of which have their own reasons to be biased.
For consideration re EFTs, indexes, and the S&P 500.
http://www.cnbc.com/2017/07/05/liquidity-valuations-in-focus-as-etf-ownership-of-sp-500-surges-bofa-ml.html
https://www.bloomberg.com/news/articles/2017-04-19/etfs-seen-creating-market-that-s-both-mindless-and-too-expensive
this is what I am referring to. There are other financial academic papers stating the dangers of index funding. if you are interested, I am happy to share.
I believe in equities,at the right price. In stocks- there are only 2 prices that matter- the price you get in and the price you get out. I am an average internist, not a financial blogger. You challenged me to make a prediction and I’ll do it. My current tbills will outperform s&P 500 in the next 5 years. Have a good night.
How much are you willing to bet on that? i.e. how much of your portfolio are you putting in T bills and how much in US stocks for the next 5 years?
Also, is this money you need in 5 years, or are you planning to change your asset allocation at some point in the future. And if so, at what point will you change that or what event will trigger a change?
By the way, your cited study doesn’t say what you’re saying it says. ETFs are not the same thing as a classic, broadly diversified index fund.
WCI, I don’t bet. I am no Warren Buffet. I prefer to preserve my capital. index is capital weighed, which means more and more money is going into fewer and fewer stocks. That’s why FANG stocks are getting more and more expensive. To answer your questions, no this is not the money I will need in 5 years. I am <40yo. My asset allocation will change but I am not in a rush to buy stocks when the market drops 10% . I chuckle when people ask, are you buying in the dip, when it's not even down 2%. my cash equivalent is about 65%.
That’s a pretty big bet. 65% in cash equivalents in your 30s. I’m trying to decide whether to say “I hope it works out for you” but to be honest, I kind of don’t because it probably won’t work out great for me if it works out well for you as I’m much more stock heavy.!
Well, this has been an entertaining thread.
As a distraction from this entertainment, some WCI followers might (or might not) be interested in reading this article:
(http://thereformedbroker.com/2016/09/19/evolution-of-the-sp-500-composition/ )
written by Joshua Brown, an NYC financial advisor in which he cites an article by Corrie Driebusch in the Wall Street Journal about the evolution of the S&P 500 and “art versus science”.
As a customer/patient, it has seemed to me that the practice of medicine in both a science and an art.
As an investor, it has seemed to me that investing too, is both a science and an art. But, given investing always involves markets and humans, investing has always, to me at least, leaned much more heavily on art than science. Much. More. Heavily.
This tilt toward art when it comes to investing is despite the fact that there have been and are a fair number of PhD in physics and maths on Wall Street building models trying to figure out how to get more return for less risk (or whatever they are working on). There are plenty of smart maths and physics people working hard to demonstrate, several decimal places out, that science is a big part of investing. I’m skeptical given markets and humans are involved.
And, I think it is prudent to wonder about art and science when it comes to investments like the S&P 500. What is the art and science that goes into determining which 500 companies are in the index? How has the composition changed in the past? How (and by whom) will it change in the future?
As an aside, I wonder how many of the medial doctors following WCI have read Elisabeth Rosenthal’s “An American Sickness”?
Quite a while ago, the economist Herb Stein said, “If something can’t go on forever, it won’t.”
It seems some of the docs here are burned out and not happy with the current health care system in the US.
Rest assured, so too are some of your patients/customers.
As health care costs in the US continue to grow (and now comprise about 1/6 of our GPD) when is it reasonable to ask, “If health care costs can’t forever increase, when will they decrease (when will the cost curve bend down)?” What will that look like for doctors? And your customers/patients?
Are doctors more worried about the composition and future performance of the S&P 500 relative to T-Bills or with the future of how health care will be provided and paid for going forward?
I do hold few remaining individual stocks and I have mutual funds, actively managed. I am willing to continue to pay for these services to provide efficiency for you and you can continue to piggyback on us who pay for these services. see you in 5 years.
Dave, thank you for the article. It is interesting. Yes, S&P 500 has significantly changed. It is decided by a committee and not necessarily financial analysts. Hence, I still continue to see the value on reviewing assets, liabilities of companies I hold. At this moment, I do not see that many companies will give me returns I wanted. So I wait. I agree healthcare costs are astronomical. So far, medicare said that they will not increase budget. We have to work with what we got. In my humble opinion, socialized medicine is not the answer. That is a completely different topic.
Great post! Just curious what people are investing in “outside” the traditional market? REITs, precious metals, etc all have correlation with the market. In case of a market pullback / crash (especially in the setting of a nearly 10 year bull market), how have investors hedged against this?
REITs have moderate correlation to the stock market. Precious metals have fairly low correlation to the stock market and the bond market, but long-term returns that are no better than inflation and a lot of volatility. Personally, I do 60% stocks, 20% bonds, 20% real estate and don’t use precious metals.
I’ve been reading Bernstein’s The Investor’s Manifesto and he said he is less enamored with the Vanguard metals fund (in 2011 or 2012 or so when wrote the book) than he had been in the past b/c it had been opened up to other metals such as lead, aluminum, etc rather than just focusing on gold and silver. I don’t have the book in front me to list the fund ticker symbol for the Vanguard fund to which he was referring. I didn’t realize that Vanguard had changed up the fund so much and Berstein definitely has a different take on the Vanguard metal fund than Green in The Gone Fishin’ Portfolio. I don’t currently own any metal funds b/c they aren’t available to me in my tax deferred accounts at work and I haven’t branched out that far in my taxable account…
I own the Vanguard fund in my mortgage payoff fund. I think it’s fine for what it is and I had decent returns the last couple of years with it. But it’s not a component of my retirement portfolio and will probably be my next gift to charity. I like precious metal miner funds better than just buying gold though. At least you’re buying going enterprises expected to make a profit.
Your 20% real estate – is this mostly REITs or are you still invested in hard asset physical property?
What makes a property hard? If you can define that, I’ll let you know whether my real estate investments are “hard asset physical property” or not.
I no longer own 100% of any investment property. More details here:
https://www.whitecoatinvestor.com/6-reasons-we-lost-money-on-our-first-rental-property/
https://www.whitecoatinvestor.com/real-estate-and-alternatives-in-our-portfolio/
bonds and modern portfolio theory
As Bogle says ” AGE IN BONDS”-he is no dummy
I’ve had some really terrible experiences with Vanguard in my short time with them (difficulty opening UTMA for accounts, getting accounts locked for no good reason, needing excessive amounts of forms with notarization to transfer less than 1000 dollars into their accounts)…I’m confident I’ve paid more in notary fees for them this year than I will in a decade of higher expense ratios elsewhere.
Are other brokerages like Fidelity really THAT bad to buy funds through? It seems that ERs are pretty comparable
Vanguard has definitely had some customer services issues over the years. Not sure whether it is due to their rapid growth, their low costs, or just where they put their focus, but it’s definitely an issue. If it bothers you a lot, you can certainly build a nice low-cost index fund portfolio at Fidelity. They used to call them Spartan funds, but I learned today they’re now called Premium funds. Either way, costs similar to Vanguard but a more limited selection.
Yeah, the tickers are still based off the old “Spartan” names (FSTVX, FUSVX, etc) but they’re just called “premium” shares. Near-identical composition to Vanguard’s funds, usually to the tenth of a percent. Same ERs for the same fund type for the major classes. Vanguard has more tilted and tax-managed options, but for most people’s portfolios who want to stick to the indices, Fido and VG are p much equivalent. I actually use Fido and hold their funds (though I p much always use VG’s as examples bc I just assume everyone uses them), and I also like how they have a brick-and-mortar right by me in case I ever need to do something in person (people still do that?).
Do you have a suggested post about portfolio made entirely of vanguard.?
https://www.whitecoatinvestor.com/150-portfolios-better-than-yours/
When Vanguard started their service was weak. I find their service today exceptional. There must be a reason that they are at the top in the industry
I would argue it’s prices and performance that explains why they are the largest mutual fund provider, not service. That’s okay, in this respect, price and performance matters far more to me than service. But to pretend I get the same thing when I call Vanguard as when I call Schwab, that’d be a lie. And lots and lots of other people have had similar experiences.
Quick correction – the price of a money market fund is $1, not zero
Where did I say that? I went back and looked and couldn’t find it to fix it.
“Since the price of a money market fund is zero, that should also always be zero.”
This is fantastic thank you. As someone relatively new who wants to invest more, do you have a similar post breaking down how to invest with them such as explaining the differences in 401ks and IRAs and taxable and tax advantaged accounts and how to use them? This part still confuses me.
I think these posts will help:
https://www.whitecoatinvestor.com/comparing-retirement-accounts/
https://www.whitecoatinvestor.com/faq-frequently-asked-questions/
WCI – Can I ask a question a bit unrelated – but it caught my eye since you mentioned it in your post…
Your children have Roth IRAS? How do you get around the earned income requirement? I ask because in pictures it doesn’t quite look like your kids are old enough to have jobs…(neither is mine)…but if there’s a way to set up a Roth for them I’d love to take advantage of that.
Thanks!
I don’t get around it. They earn income. See all those pictures of them on this site? You know what a child model makes as an hourly rate? My 13 year old to babysit. She does a tax return and puts 100% of her earnings in her Roth IRA.
https://www.whitecoatinvestor.com/my-childrens-inheritance/
https://www.whitecoatinvestor.com/how-our-children-will-survive/
How about other blog work? My daughter has written a post and helps me with some IT stuff like posting to twitter. She is more tech savvy than I am and I would have to pay someone else if she didn’t. It is a LLC expense so it should be fine. Reasonable rates have to be followed. She babysits but only her brother so far – and that won’t count for Roth IRA income. I need to get her babysitting someone else’s kids for that.
If it is legitimate work and you are paying a reasonable rate, then yes, it’s fine. The best part is that if you’re not taxed as a corporation and the only owners are the parents the kids don’t pay payroll taxes and don’t pay taxes on quite a bit of income. So tax-free earning, tax-free growing, tax-free coming out.
Few thoughts:
1. I now remember well what studying biochem was like in medical school again thanks to this kind of post 🙂
2. Great post. It is making American better. No joke. Very instructive.
3. I was in a unique place in the past investing when I started out. I was placed in a fund of funds that despite filling out forms stating we wanted a growth level of risk, was actually very aggressive in style. My wife and I lost money on this (of course.) We actually called it the “no fun fund.” What would you call something that lost 70% in one yeat? This experience was with Merrill Lynch around 2000.
We communicated our dissatisfaction with ML management and were offered to sign a document that would absolve ML of malfeasance. If we did we would be put in an investment vehicle that normally one needed $2-5M to qualify. It was run by one of ML’s gurus. He charged us only $2k per year and sent us a bill for tax purposes to itemize. Returns were good and cost on our portfolio was very low. However after a few years however we become worried about this guru not being able to hit home runs every year forever. We are now in low cost mutual funds.
Roth IRA for your kids, a no brainer
Put it ALL in Sp500 or total stock and they might thank you one day
its a gift from the gov’t
Enjoyed the post. In your opinion for a taxable account is there a large difference or benefit between investing in ETF vs. index fund. E.g Schwab total stock market index fund vs. Schwab US broad market ETF? Thanks
No. Use whichever is cheapest and most convenient for your situation. It particularly doesn’t matter with the Vanguard ones as they are two share classes of the same fund.
Can you do a post about what kind of funds should go to Taxable, Roth, 457, 403 accounts.
I’ve written on asset location a few times. Some aspects of it aren’t as complicated as some make it out to be (whether you put an asset in Roth or tax-deferred) while others are more complicated than some make it out to be (whether bonds should go in taxable or tax protected.) It really turns out to be quite an advanced topic requiring impressive predictive abilities to get it exactly right.
This post should help: https://www.whitecoatinvestor.com/my-two-asset-location-pet-peeves/
Great post! I’m relatively new at investing, this was very helpful!