Mr_Right is offline Mr_Right Post #1  November 16,2009, 5:21pm
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So what are people's thoughts on index funds vs normal mutual funds?
 
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neardc is offline neardc Post #2  November 16,2009, 5:47pm
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They tend to do as well as or better than many managed funds targeting the same types of investments (although without the extreme highs or lows). Plus, they are cheaper because of the much lower management fees.

I have both sorts of funds in my portfolio, as well as individual stock investments. What's more important is that you balance the types of investments in your portfolio (value, growth, international, etc.).

Considering how my investments have done over the last few years, though, I wouldn't go to me for advice...lol.
 
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j0hn8andy is offline j0hn8andy Post #3  November 16,2009, 6:33pm
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Index funds are designed to return whatever index they follow, minus fees. They will probably be more tax efficient, because they only sell or buy when they index changes. But they will never beat the market. If you want to buy it and forget it, an index may be your best bet. In my opinion, they are ideal for difficult markets like Emerging Markets, where you just can't get enough information.

Managed funds will attempt to beat the market. You want to look at who the manager is, and the time frame they've been on that fund, as manager tenure can have an effect on your historic returns. Buy the manager, not the fund. Look at their turnover, which is how much selling they do. High turnover is tax INefficient, in that the gains are short-term.

It is possible to beat the market, but it takes an awful lot of work. I never did my own investing while I was working. I was all funds then.

The best thing you can do at your age is to work on your Asset Allocation (what percentage you want in stocks, bonds, cash). Asset Allocation, in my opinion, is even more important than your actual investments. Most any firm you can use (Merrill Lynch, Vanguard, Fidelity, etc) will have questionnaires designed to help you decide on your correct Asset Allocation.

Or you can just use a Target fund. Based on your retirement age, Target funds automatically adjust between stocks, bonds, etc. Target funds are Funds of Funds; they usually hold several index funds, and shift assets between them. You can look to see how they break down the asset allocation, and that can give you an indication of what you might aim for.

Beyond that, control your costs. Vanguard is the low-cost leader. They've held that lead many years. Costs is the one thing, beyond asset allocation, you can control. Look at your front or back end loads. Those fees you pay up front when you buy, or in back, when you sell. Go for no-load, if at all possible. For me to want to pay, that fund better be absolutely outstanding!

Bonds, always use funds. You just don't have enough money to buy individual bonds. And you don't have enough money to be able to diversify. Bond funds are what most people should use.

I probably have half my money in individual stocks right now, the other half in stock and bond funds, and cash. This last year, though, as I sell stocks, I've been putting it into bond funds, or just leaving it in cash. It just takes so much time paying attention to individual stocks, and funds are just so much easier! Most of my funds are managed, either with Vanguard or American. And right now, I'm sitting on alot of cash (just like alot of other people!).

Asset Allocation.
Control your costs.
Bond funds.
That's the basics.
Good Luck, Mr. Right!

j8a
 
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D_Lion is online now D_Lion Post #4  November 17,2009, 7:39pm
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Well, shut me up!

Can't add to this advice.
 
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timeless2 is offline timeless2 Post #5  November 18,2009, 5:47am
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I also use Vanguard, but bought alot when the market hit bottom. yes, the emerging market fund is 74% and has been mostly a high earner since inception. i have money with other institutions but am thinking of consolidating. there are tests/quizes to take to get an idea about your risk tolerance.
 
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j0hn8andy is offline j0hn8andy Post #6  November 18,2009, 6:30am
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D_Lion wrote :
Well, shut me up!

Can't add to this advice.
nearDC and I should take that as a compliment, because I know a Frog is all about the green!

j8a
Last edited by j0hn8andy; November 18,2009 at 6:31am. Reason: & sometimes the gold
 
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D_Lion is online now D_Lion Post #7  November 19,2009, 4:25pm
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Be my guest! Great posts!
 
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