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Old 02-25-2014, 03:01 PM
 
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I am in the process of rolling over an old 401(k) into an IRA. I am trying to decide if I just want to buy index funds or buy actively managed funds. Part of me thinks I should just index due to the low fees. The other part of me thinks I should chase higher returns because I am 30 years from retirement. The account is roughly 15k.

What say ye experts?

Thanks.
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Old 02-25-2014, 04:18 PM
 
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without a firm strategy just index.
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Old 02-25-2014, 04:22 PM
 
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Personally, I like index funds with the stable returns and low fees. Getting good actively managed funds can be a crapshoot, the fees can be a double wammy when they don't do well, and you need to kind of manage the fund manager to keep on top of changes (new managers, new fees, turnover changes, etc). Indexes are low fee, broadly diversified, less human error, no asset bloat, little investor management...but if certain stocks impload they don't change assets.

Indexes tend to outperform actively managed funds, especially over the long term where fees can really make a dent. However, if you get a good actively managed fund then stay with it...but with a new investment and 30 years an index will do well.
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Old 02-25-2014, 04:31 PM
 
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if you get a good combo of actively managed funds that work well as a team you can do fine even without rock bottom fees. but with you knowing little about investing just cover all the bases and index.

my personal preference has been actively managed funds but my funds play nice together and collectively they have beat just buying an index fund for over 25 years.
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Old 02-26-2014, 12:08 AM
 
28,306 posts, read 30,863,678 times
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Quote:
Originally Posted by Suite1800 View Post
I am in the process of rolling over an old 401(k) into an IRA. I am trying to decide if I just want to buy index funds or buy actively managed funds. Part of me thinks I should just index due to the low fees. The other part of me thinks I should chase higher returns because I am 30 years from retirement. The account is roughly 15k.

What say ye experts?

Thanks.
I never argue too hard against indexing...but I personally think active management can beat the indexes over the long term IF you pick actively managed funds that have below average expenses and good long term track records.

It really all boils down to what you're comfortable with. The most important thing is to be consistent and not be switching around all the time.

Funds like these:

Vanguard Dividend Growth
Vanguard Equity Income
Vanguard Wellington
Dodge & Cox funds (Balanced, Stock, & Global Stock)

All have such low expense ratios they are worth looking at.
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Old 02-26-2014, 08:35 AM
 
Location: Iowa
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A solid and diverse mix of asset allocations and indexing is hard to beat. I sleep well at night because of it.
If I need to get in and manage, I do it with my 'play' fund money. My experience is that extra money I make is eventually overshadowed by the extra fees and taxes to a small net loss compared to indexed money.
My general trend is to do better riding a bull, but get knocked over by the bear. The upside though is that I am learning how to be a better investor and money manager by doing both.
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Old 02-26-2014, 08:44 AM
 
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we discussed this many many times. a quick search should find most of the debates.

it is all about how the total portfolio plays with each other in good and bad times.

just buying a total market fund or s&p fund would have left your money stagnant for more than a decade regardless of low expenses.

low expenses are only one factor to your over all return. blow any of the other more important parts of the puzzle and your low expenses go right out the window in comparison to slightly higher expenses in a better acting portfolio .

many indexers end up like many car buyers.

they pound the dealer for the lowest possible price then pound the finance guy for the lowest terms.

3 years later they trade the car in at wholesale value.

grandma pays more , pays higher financing charges and sells under more favorable conditions. grandma wins!

while jack bogle did a great job focusing on fees the fact is the funds don't operate in a vacuum.

there are many other pieces that have to be correct.

blowing it in one area like fees can end up being made up somewhere else that works out better when looking at the total portfolio as a whole.

Last edited by mathjak107; 02-26-2014 at 09:21 AM..
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Old 02-27-2014, 01:57 AM
 
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In general an index fund will generate the same returns as a good actively managed mutual fund over the long term when you take into account the fees. In general a lot of actively managed funds will do worse then the index fund.

Even actively managed hedge funds for the rich are a crapshoot vs. an index fund. Here’s a link in case you feel like manually running some detailed calculations of your own.

http://www.institutionalinvestorsalpha.com/Research/4270/Hedge-Fund-100-Ranking.html

Now after all that’s said and done; if you are an expert in terms of knowledge in regards to all the intricacies of how to calculate long term average returns on specific mutual funds AND your willing to put in a considerable amount of time doing your research then there are mutual funds out there that will beat index funds.

But again you should be an expert and make sure you’re an expert. Currently I myself wouldn't feel comfortable doing research with my own level of knowledge and would rather opt for an index fund.
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Old 02-27-2014, 02:42 AM
 
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i have never been concerned about whether a fund beats its index or not. what i am concerned about is whether my total portfolio is giving me the the risk vs reward i want.


many of the portfolio's we have used through the years have either beaten or done about the same as the s&p 500 but with 15 to 20% less risk at times.
that is the name of the game for me , not just having a fund beat an index.

it is also far easier to fine tune a portfolio for the bigger picture using managed funds since you can exploit fund managers preferences..

i always use the examble of when the dollar was weak we used fidelity export and multinational for part of the year. later on when it strengthened we shifted to a fund where the manager weighted more for a stronger dollar.

neither fund beat its index that year but working together the combo sure did.

right now only 26% of fund investors index. as that number grows the underlying stocks that make up those indexes will become more and more and more over valued as money flows only into them.

the value will be found everywhere else but in indexing if indexing really catches on.

it will be a means to its own demise if it is really successful.

there are excellent newsletters out there for most fund families that put very nice model portfolios together and with an e-mail each week tell you if they are making a swap. you need know nothing to get great results. i have used fidelity insight for 25 years.

staying in the game and not second guessing yourself and bailing out when you are in the drivers seat beats just lowest fund expenses any day.

you can find newsletters that cater to indexing and etf's as well.

if they can get the portfolio aspects correct and have low fund expenses they may be the best of both worlds.

i do not follow any of those newsletters so i can't say how they perform.

Last edited by mathjak107; 02-27-2014 at 03:00 AM..
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Old 02-27-2014, 02:49 AM
 
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some interesting results have already started to take shape at fidelity, i would imagine other fund families are seeing similiar results.


looking at some of the 2013 results.

out of 26 fidelity large cap funds only 6 failed to beat the s&p 500.

I think the indexes took the prize though in the small-caps as the Russell 2000 and nasdaq did very well beating most fidelity small cap funds.

mid caps again saw most of fidelity's funds beat the Russell mid cap index.


looking back to 2012 at fidelity we had 27 large cap funds ,21 beat the s&p 500


2011 saw the s&p beat all but 2 of fidelitys large cap funds


2010 saw out of 27 funds, 21 again beat the s&p 500

that is all i have access to in the archives .

so out of the last 4 years you had the index win once and the managed funds win 3x

i guess the last 4 years we can say managed large cap funds at fidelity have beaten indexing 75% of the time but more important the number of funds beating the index has been near land slide except 1 year..


don't get me wrong i am not anti indexing , i am just pro total portfolio construction and having a sound overall strategy vs being just a boglehead sheep and thinking low expenses and buying a total market index fund is the be all and end all to investing and all you need..

there are some excellent portfolios that can be put together indexing but it becomes more difficult to exploit or weight into various areas like you can with active funds if you see the managers preferences.

Last edited by mathjak107; 02-27-2014 at 03:24 AM..
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