Comments on: Why It’s So Hard To Outperform Index Funds

By: Zach @ Four Pillar Freedom

Zach @ Four Pillar Freedom — Thu, 14 Dec 2017 17:06:39 +0000

In reply to Rob Duncanson. Great point, Rob. Active trading has considerably higher fees and you're far more likely to sell and buy at inopportune times. No matter which way you slice it, index fund investing has the upper hand.

By: Rob Duncanson

Rob Duncanson — Wed, 13 Dec 2017 18:48:40 +0000

Lucid explanation. Add to the graphic the psychology of active trading (selling too soon\late and buying too soon/late) and indexing has an additional edge. As a stock increases/decreases market cap the index fund automatically adjusts the proportion, buying winners and selling losers.

By: Zach @ Four Pillar Freedom

Zach @ Four Pillar Freedom — Tue, 18 Apr 2017 21:14:16 +0000

In reply to SMM. You would still have to pay capital gains tax, but if you follow a strategy of buying an index fund and holding it for many years you would only have to pay long term capital gains tax once you sell instead of short term capital gains tax, which are higher. For people who choose to buy and sell stocks frequently they must pay short term capital gains tax if they hold the stock for less than a year. This is what I mean when I say buying and holding an index fund is more tax effective.

By: SMM

SMM — Tue, 18 Apr 2017 20:08:12 +0000

I’m getting into index funds too lately. They offer so much more diversification too since you’re invested in soooo much! So if you sell an index fund for a profit, there is no capital gains tax?

By: Troy @ Market History

Troy @ Market History — Sat, 15 Apr 2017 18:22:12 +0000

It’s hard but not impossible (which is the point that many people miss). I took me years to develop my models to the point that over the long run, they can beat the S&P 500. Of course in the short run it might underperform the S&P, but that doesn’t really matter to me.

By: Zach @ Four Pillar Freedom

Zach @ Four Pillar Freedom — Sat, 15 Apr 2017 13:56:15 +0000

In reply to HBFI.

HBFI, I think your individual stock picking is reasonable since it seems to only be a small percentage of your portfolio and you hold these stocks for an extended period of time. I admit I also like to keep my eye out for individual stocks on the rare occasion that a company stock I like gets beaten down pretty badly. I think the most important aspect of investing is simply that you have a long-term view and you don’t attempt to jump in and out of stocks often to beat market returns – I think this is generally what leads to poor investor performance. Thanks for the feedback 🙂

By: Zach @ Four Pillar Freedom

Zach @ Four Pillar Freedom — Sat, 15 Apr 2017 13:49:59 +0000

In reply to Save Splurge Deny Debt – Cameron.

I think the main reason people don’t use index funds is because they seem so simple…too simple. It’s hard to believe that such a simple investing strategy can perform so well over time but it does. I agree, index funds for the win 🙂

By: HBFI

HBFI — Sat, 15 Apr 2017 13:07:23 +0000

I agree that index investing is the best path. I’ve retained ~90% of my investments in Vanguard funds for over a decade with no regrets. And I also make it a point to just leave things be (already 100% stocks) with the exception of occasional tax-loss harvesting where I switch assets from one similar vehicle to another (ex, European int’l fund to Global int’l fund). Having said, I do occasionally purchase individual stocks. It’s not something I recommend to others though. It has taken me over a decade working in finance and studying others work to develop an adequate skill set to screen what matters and what doesn’t in 10-Ks and 10-Q, as well as learning to accept the fact that you can only see a sliver of any information and have no idea what the future will bring. But, over stretches of years and many inconclusive analysis, I’ll occasionally stumble upon a nice business that I can understand (rarely tech, mostly industrials) and which has been hammered for reasons attributed to market panic. I’m not trying to pick from indexes, just picking off the rare opportunistic spot where I believe the upside will far outweigh further downside over the course of many years. That strategy has worked out very well. Better than had I put that same $ in my indexes. However, it’s important to note that this is not comparable to the indexing I do or even to active mutual fund managers. I will often go years without finding something that fits the bill. In the interim, cash flow continues to come in from my job and has to go somewhere. So most of my money continues to go into Vanguard index funds. All around, the combined strategy has been very lucrative. And fun!

By: Save Splurge Deny Debt - Cameron

Save Splurge Deny Debt - Cameron — Sat, 15 Apr 2017 02:05:16 +0000

Index Funds = Winning!

I love investing in and writing about Index Funds. I hate that when I was an advisor most people only wanted to pick single stocks (ex: penny stocks) or more complicated investments like futures/options. They thought they could pick the next Amazon or Google. Their hope of winning the stock lottery and emotion got in the way of good ‘boring’ investing.

I am glad to see index funds starting to take hold for the average person. Warren Buffett even commented many ties that large endowments and pensions should just hold index funds, and he says they never listen to him….

Thanks for the graphic and article!

By: Zach @ Four Pillar Freedom

Zach @ Four Pillar Freedom — Sat, 15 Apr 2017 01:35:05 +0000

In reply to Making Your Money Matter.

I completely agree – aside from index fund investing outperforming active funds, it’s also the most stress-free way to invest 🙂