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I agree - the pros don't know better with very minor exception.
Half of the money invested by active fund managers beat a total market index, and half is beaten by the index, because the index is an average.
Actually the data says much worse for active management over the long term - only about 10% of active managed funds outperformed the index over the last 15-20 year period - even in most years, it is more like 20-25% beat the index (it was only 15% in 2021). The Index is not really an average - it is the index of stocks if invested as weighted.
a good portfolio which uses active funds tends to not buy and die with the same funds .
funds have sweet spots where different things in the bigger picture help or hurt them .
so over time portfolios like the fidelity insight one’s tend to do better then any of the components .
one of those cases where the sum is greater then the parts
some funds are held for decades , others are gone in a year.
the same fund you may use if the dollar is strong isn’t the same fund you would use if it’s weak .
there are better funds for rising rates and falling rates as an example .
fund managers can change as well .
fidelity contra fund had been a core portfolio holding in the models for decades . it has been gone for a while and out of them as another example .
so using active funds is not usually going to be sitting with every fund forever and that changes the dynamics of things.
many fund managers are excellent stock pickers but the funds are small and internal costs rob them of their performance.
other funds are restricted to only buying approved stocks by analysts like many fidelity fund managers and end up becoming closet indexers with no alpha to speak of just higher expenses then an index .
so there are lots of reasons active funds can lag .
morningstar found that sticking to the largest 20% in capitalized funds by investor dollars also increased the odds of beating indexing by 80%
i use both index funds and active funds and my portfolio of active funds have done much better over the years.
it’s funny how vanguard went from their anyone can be beat the pros by indexing marketing campaign to promoting their managed funds more recently . like wellington and wellesley .
then of course when vanguard got in to wanting to manage more of your money they produced a study which showed. , everyone can’t do it despite indexing
investor behavior and other factors hurt the small investor and investors can add 2-3% a year on to their returns by letting their professionals handle your money in most cases .
and so the storyline with them keeps changing depending what they want to sell you .
i stoped doing business with them when they deleted all beneficiaries off of all joint accounts without notifying anyone , other then a things to do message on their website
then we were told we would be better served by trusts which they can help us with .
Bull … i don’t need a trust and so coupled with their horrible customer service i pulled out whatever business i did with them
Last edited by mathjak107; 04-16-2023 at 02:20 AM..
Actually the data says much worse for active management over the long term - only about 10% of active managed funds outperformed the index over the last 15-20 year period - even in most years, it is more like 20-25% beat the index (it was only 15% in 2021). The Index is not really an average - it is the index of stocks if invested as weighted.
I wasn't referring to funds. I was referring to dollars invested.
Arithmetically, every dollar in excess of an average is balanced by a dollar below the average, because that's how averages work.
When we come to very broad market indexes such as the VTI or even better VT, every actively managed dollar that is above the average is balanced by another actively managed dollar that is below the average.
Two or three years ago, I increased my 401K contribution to the maximum amount I am allowed to withhold including the maximum catch up. it hurts to take out so much, but I want to retire reasonably soon.
I broke my policy and looked at my 401K today. In the past year, I have lost 20 years worth of contributions at my current rate of contribution.
Someone help me out here. Why should I continue dumping money into this black hole?
It seems clear we are sinking into a major recession and the market values will get worse in the next year or two before they start to recover at all.
I would have been better off taking cash and sticking it under my mattress. Yes I would have lost 7 or 8 % per year, but that is far better than this. as it is, I still lost the 7-8% to inflation on top of the other losses.
I should have listened to myself and not looked. Nothing I can do about it.
Personally I think the whole idea of dumping money into a retirement account and leaving it unwatched and untouched is a myth perpetrated by the brokerages.
Monitoring and managing your 401K or IRA is a perfectly reasonable approach. Not hourly or daily, but every few weeks, or months. My strategy was to have all my contributions in a market index fund when the long term trend and forecasts were positive, and to toggle it to a money market fund when the long term trend and forecasts were down-turning. Trying to beat the market with stock or mutual fund picking is a fool's errand for the average investor. (Just ask Warren Buffet). Likewise, reacting to every dip or squiggle in the market is in general a failing strategy.
I studied the markets and the long term forecasts ever week or two, and made the toggle between index funds and money market funds about 6 times or so over the last 15 years (latest toggle to MMF was the beginning of 2022).
I didn't extract the last possible dollar, but with that strategy I increased the value of those retirement accounts to what I needed.
Anyway sorry to hear you are in this situation. You will need to have a more aggressive strategy and probably a financial advisor if you are nearing retirement.
Last edited by GearHeadDave; 04-16-2023 at 12:28 PM..
Personally I think the whole idea of dumping money into a retirement account and leaving it unwatched and untouched is a myth perpetrated by the brokerages.
Monitoring and managing your 401K or IRA is a perfectly reasonable approach. Not hourly or daily, but every few weeks, or months. My strategy was to have all my contributions in a market index fund when the long term trend and forecasts were positive, and to toggle it to a money market fund when the long term trend and forecasts were down-turning. Trying to beat the market with stock or mutual fund picking is a fool's errand for the average investor. (Just ask Warren Buffet). Likewise, reacting to every dip or squiggle in the market is in general a failing strategy.
I studied the markets and the long term forecasts ever week or two, and made the toggle between index funds and money market funds about 6 times or so over the last 15 years (latest toggle to MMF was the beginning of 2022).
I didn't extract the last possible dollar, but with that strategy I increased the value of those retirement accounts to what I needed.
Anyway sorry to hear you are in this situation. You will need to have a more aggressive strategy and probably a financial advisor if you are nearing retirement.
I have never heard of anyone Never looking at their account.
My boss invested 100% maxing out the 401k for 30 years in an S&P 500 index. He was making more with that annually than with his salary. I have not discussed this the last 5 years with him to know how it is fairing. But, another one of my colleagues said that during the big downturn with Covid he was down over $1M at one point. I don't know how much that has recovered. I suspect I will know pretty soon whether he actually retires (or not). I'm going to assume he's still down if he actually does not retire at the time he has projected for the last 12 years (that I know of)...
I have never heard of anyone Never looking at their account.
My boss invested 100% maxing out the 401k for 30 years in an S&P 500 index. He was making more with that annually than with his salary. I have not discussed this the last 5 years with him to know how it is fairing. But, another one of my colleagues said that during the big downturn with Covid he was down over $1M at one point. I don't know how much that has recovered. I suspect I will know pretty soon whether he actually retires (or not). I'm going to assume he's still down if he actually does not retire at the time he has projected for the last 12 years (that I know of)...
If you are not going to move things around, why look at it? It will be what it will be. The only time I need to know how much is in there is if I apply for a large loan. Otherwise looking at it is irrelevant. Eventually it will make you really ticked and sad. I wish I had not looked at it. Now I have to worry whether I will be living in the gutter if I am still alive at 90. If I had not looked, I could just worry about that when I am 90 (if I ever get there). when I retire, SS will provide a certain amount of money, My 401K disbursements will provide a certain amount of money and any contract work that i do will provide a certain amount of money - and that is what I will live on. If it is not enough, I will just have to cut costs until it is enough. I am not going to base my retirement on a certain amount, but on when I am done. That is coming fairly soon. Whatever the amount is, will be what it is. I am no longer willing to base my most important life decision on a number. Once I retire, I do not need or want a big house, or shoes, dress clothes, two expensive cars, too many pets to count, or even a fancy cell phone.
Man 8 pages of comments and we still haven't come up with a legitimate scenario where the original claims would have ever been true of losing 20 years of contributions due to a down year of maybe -5%.
And also no one commented on a core reason to contribute to a 401k...tax arbitrage. If you are earning a decent salary now and are likely facing a lower tax bracket after retirement, this arbitrage makes it well worth the investment even though many 401k plans kinda stink due to high fees. If you aren't earning that much this arbitrage doesn't apply and you should be putting your retirement money into a Roth instead.
Lastly, the comments about living in a homeless shelter and acting like you will go hungry in retirement is just so far from what almost anyone faces as long as they at least plan for retirement. I mean really between Social Security and all the subsidies for seniors, living on the street and facing starvation are very unlikely outcomes. You may have to work more years than you wish but to think this is even remotely possible is not worth the anguish.
except it isn’t about the final years vs retirement .
it is the long term average spanning decades that determines the tax outcome .
most career paths start out very low and get higher and higher over decades .
the long term average can actually be lower then their retirement bracket is
usually a retirement lifestyle is close to the final years income so more often then not the retirement bracket is higher then that long term average spanning 30-40 years .
people make the mistake of only looking at the their last couple of earning years and go we will be in a lower bracket in retirement but it really may not be the case
Last edited by mathjak107; 04-17-2023 at 04:21 PM..
If you are not going to move things around, why look at it? It will be what it will be. The only time I need to know how much is in there is if I apply for a large loan. Otherwise looking at it is irrelevant. Eventually it will make you really ticked and sad. I wish I had not looked at it. Now I have to worry whether I will be living in the gutter if I am still alive at 90. If I had not looked, I could just worry about that when I am 90 (if I ever get there). when I retire, SS will provide a certain amount of money, My 401K disbursements will provide a certain amount of money and any contract work that i do will provide a certain amount of money - and that is what I will live on. If it is not enough, I will just have to cut costs until it is enough. I am not going to base my retirement on a certain amount, but on when I am done. That is coming fairly soon. Whatever the amount is, will be what it is. I am no longer willing to base my most important life decision on a number. Once I retire, I do not need or want a big house, or shoes, dress clothes, two expensive cars, too many pets to count, or even a fancy cell phone.
huh ? if performance stinks why would you not want to switch to something else or make other investment plans ?
maybe just get the match and then use an ira and or tax advantages funds in a retirement account .
there are loads of alternatives, so i can’t see just not paying attention or caring about something so important
to be honest there is no excuse for not paying attention and making necessary changes
If one did not want to ever look at an account and pay attention then the stock market would be the wrong investment. That is one way to know that you do not have the stomach for it.
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