
What Would Have Happened Had You Invested in an Index Fund? - thebear
http://blog.greaterthanzero.com/post/84006166062/real-benchmarking-what-would-have-happened-had-you
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leorocky
I'm not sure the post ever answers the question given in the title. It gets
very detailed, but it's a pretty muddled, unclear answer at best about
something related to benchmarks.

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pcrh
Here's a comparison between Berkshire Hathaway and Vanguard for the past 10
years: [https://i.imgur.com/yHVY0qP.png](https://i.imgur.com/yHVY0qP.png)
(data from morningstar.com).

Overall, very similar, but if you went in and out of the funds at different
times you might have had a different net result.

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infecto
Article did not have a very clear answer. Its more powerful to look at the
alternative to index investing. First of all lets be clear that true index
investing balances your equity/fixed portfolio based on age or some risk
profile. As for alternatives, close to all money managers do not beat the
market in the long term. There are exceptions but the vast majority are not
going to beat it. So outside of index based investing my options are very
limited. If most hedge funds lose to the market, how am I going to beat it?
Might as well just settle for index investing and balance my fixed/equity
ratio. No time wasted and in the long run most likely will come out ahead.

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WalterBright
My father once told me that the secret to successful stock market investing
was to start investing a long time ago.

It's not as trite as it sounds - what he meant was start investing as a young
man, and keep adding to it.

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wikwocket
Like the old proverb: "The best time to plant a tree is 20 years ago. The
second-best time is now."

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Lightbody
Worth calling out: if your money isn't tax sheltered (IRA or 401k) then an
index fund will be worse than buying those individual stocks.

That's because with individual stocks you can sell the losers from time to
time, buy a similar replacement (ex: Coke for Pepsi) to avoid the wash rule,
and harvest a bunch of capital losses to offset future gains.

Proper tax management is a HUGE part of this and is almost always overlooked
in these kinds of articles.

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cperciva
_if your money isn 't tax sheltered (IRA or 401k) then an index fund will be
worse than buying those individual stocks._

... as long as you're handling sufficiently large amounts of money that you
don't lose the difference on trade commissions. Rebalancing my ETF portfolio
costs me $60 (6 ETFs, $10/trade), but rebalancing a portfolio consisting of
the 2000 individual stocks and bonds in those ETFs would be insane.

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Lightbody
Absolutely right. It helps that you don't really need all x000 stocks since a
diversified subset (say 100) will be very close to index performance and still
yield the harvesting benefit.

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tempestn
If you're going to invest in index funds (and you should), don't pick the S&P
500. Why invest in 500 stocks when you could use the vanguard total market
index instead, and invest in essentially the entire US market, with a
management fee of 0.05% per year? Also, there's no need to take on unnecessary
risk by concentrating investments in the US. Better to put a good portion in a
broad ex-US fund as well. Vanguard has a good option there too, of course, but
there are certainly others as well.

Also, if like me you're outside of the US, these all come in ETFs that can be
bought anywhere and have similarly low fees.

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thebear
Indeed, investing in just the S&P 500 would be an example of poor
diversification: you'd limit yourself to US large cap stocks. By recommending
the S&P 500, Warren Buffet is saying, implicitly, that he believes in US large
caps to the extent that he does not even want to diversify.

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tempestn
I would give him the benefit of the doubt and assume he was simply picking an
index everyone has heard of. But regardless, yes, it would be poorly
diversified.

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dsrguru
This read much more like an advertisement for GreaterThanZero's services than
an article whose conclusion actually addresses the title's question, but the
author seemed to do a good job accounting for the differences between Warren
Buffet's estate and a regular, living person's money (namely that the person
sometimes needs to spend it).

Actually, come to think of it, I don't think the author explained why Buffet's
estate should be treated as if withdrawals will never be made from it, but I
assume it's because the 10% of his money that will go into short term savings
bonds is still a ridiculous amount of money and should be sufficient to cover
any expenses in the foreseeable future.

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themartorana
Companies come and go, especially tech stocks and whatnot. Buy a single share
of the DJIA at 13k in 2007, see it drop to 8.5k, wait a couple of years and -
wait - it's at 16,500. It's a 27% return in 6 years, which isn't great, but
considering the crash, you're still up.

That said, I don't know much about investing. But index funds seem to me
(completely useless when it comes to investing) one of the safer bets if I'm
going to be in the market at all.

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Consultant32452
The reason why index funds are better is because they're generally managed by
a very simple computer algorithm which means very very low fees compared to
actively managed funds. If you look over the lifetime of someone's 401k it's
really shocking how much is eaten up in fees. Also, over long periods of time
you're generally not going to beat the market.

What you pointed out about the DJIA having lots of fluctuation, particularly
during crashes, is why it's important to keep investing a little every
paycheck. That way when stocks are low you're buying more shares. It's a sale!

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ChristianMarks
MarketRiders has been providing similar advice to invest in low load index
funds and EFTs for some time [1]. The real issue is that if you are paying 2%
fees or if the account is being churned (or both), you're getting screwed.

Suggestion: show all calculations.

1\. [http://marketriders.com](http://marketriders.com)

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thrush
Was a bit difficult to parse at first glance. Was the answer in favor Buffet's
advice?

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diogenescynic
Yes, Buffett's advice gained $9,309 more over a 5-year period.

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lsc
Heh. The first thing you learn when you back-test stock-trading algorithms is
"Give me any investing strategy, and I will find you a five-year period where
it does well."

Which isn't to say that I think you can outperform index funds... I don't; but
the answer, it looked to me, was 'sign up for the GreaterThanZero web app and
run the model yourself.'

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diogenescynic
Agreed, but in this case it looks like he was responding to Buffett's quote:

>My advice to the trustee couldn’t be more simple: Put 10% of the cash in
short-term government bonds and 90% in a very low-cost S&P 500 index fund. (I
suggest Vanguard’s.) I believe the trust’s long-term results from this policy
will be superior to those attained by most investors—whether pension funds,
institutions or individuals—who employ high-fee managers.

Then he compared his 401k results with the Vanguard Target 2040 fund. Seems
pretty straightforward.

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zalzane
why does buffet suggest 10% in short-term gov bonds?

is it a security/diversity thing?

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saryant
I'm not sure about Buffet's advice, but John Bogle (founder of Vanguard)
recommends bonds so that you can rebalance your portfolio to your desired
asset allocation when stocks are down by simply selling some bonds to free up
capital.

So if you have 90% stocks and 10% bonds but the market takes a dive and now
you're at 80%/20%, you can sell enough bonds to bring you back to a 10% bond
allocation and use those funds to buy more stocks.

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akadien
This article does not address Warren Buffett's advice at all. Instead, it
compares two target date funds, one active and another indexed. Not really
apples to apples.

