
World's Simplest Portfolio  - KeepTalking
http://dilbert.com/blog/entry/worlds_simplest_portfolio/
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patio11
For most investors, rather than the ETFs you'd be better off waiting until you
had a few thousand and then buying the equivalent index funds from Vanguard.
The reason is that most people will be adding to retirement investments on a
monthly basis, and if you do that with ETFs your transactional cost to buy
shares will dwarf the ETF's management fees for quite some time.

Although if my memory from several years ago is right, Vanguard charges a sale
fee for the fund equivalent of their emerging market fund, to discourage
people from trading into and out of it frequently. You can check that on their
website -- it would tend to change the above result for most people here.

Disclosure: Upwards of 60% of my retirement accounts are ETFs, including the
Vanguard ones mentioned. They most important thing, far more important than
specific allocation, is that you contribute regularly and do not trade.

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neilc
_And this is despite the fact that on average, experts can't beat a monkey
with a dartboard when it comes to picking stocks. Every study has shown this
to be true._

If that is true (and I've certainly heard it repeated often enough), then why
is the Harvard endowment managed by a private group of experts? Similarly for
just about every large endowment, pension fund, and similar pool of money. If
those experts aren't able to either offer improved returns or reduced risk vs.
random stock selection (or buying an index fund etc.), then I suspect that the
boards of these large institutions wouldn't be paying the money managers'
fees.

~~~
slapshot
I'll assume you're being serious:

1 - Because Harvard invests in lots of things that aren't liquid and well-
traded. It's hard to guess the next direction of the U.S. stock market in part
because the market is very liquid and there is a lot of volume. But Harvard
also invests in things like timber lands (low deal flow), private equity (low
liquidity), and other things that are very hard to price. These investments
aren't available to you and I unless you happen to have $50 million laying
around.

2 - Because when you have $40 billion to invest, very small differences in
return make a massive different in dollars. If you're investing $40,000 then
the last few pennies don't matter; if you're investing $40 billion those
"pennies" are scholarships for 10 more kids.

3 - Because, as the the article implies, financial planning gets a lot more
complicated when you have a different time horizon than "sometime in the
future." A school like Harvard has spending needs every year and can't ride
out a downturn the same way that a young kid saving for retirement can. On the
other side, Harvard also hopes to last forever, and can make investments that
won't pay off for 50 years. Time planning gets a lot more complicated.

4 - Taxes.

~~~
neilc
Thanks! Interesting answer.

With respect to (1), wouldn't a mutual fund have access to the same sorts of
low liquidity opportunities? That seems like a possible reason to prefer a
managed fund over an index fund, despite the higher fees.

~~~
anamax
> wouldn't a mutual fund have access to the same sorts of low liquidity
> opportunities?

It depends on the fund's rules and mutual fund regulations.

Also, non-liquid assets make it hard to maintain the target allocation when
the fund is attracting lots of new money or folks are bailing.

~~~
neilc
Fair enough -- presumably both of those are simplified if you s/mutual
fund/hedge fund/.

~~~
anamax
> presumably both of those are simplified if you s/mutual fund/hedge fund/.

Possibly. I don't know the rules for hedge funds, the rules specific to other
vehicles that are open to non-accredited investors, or the rules that apply to
all such vehicles.

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dschobel
As a caveat, it should be noted that John Bogle, founder of Vanguard (and the
whole index investing movement, for that matter) is not a big fan of the ETFs.

Check out [http://www.indexuniverse.com/sections/news/6012-bogle-
invest...](http://www.indexuniverse.com/sections/news/6012-bogle-investors-
are-getting-killed-in-etfs.html) to see how Vanguard's ETFs performed against
Vanguard's index funds (in short, not well).

I agree with Adams that index based investing is a great idea for hands off
people, but do yourselves a favor and read Bogle's seminal book on index
investing: [http://www.amazon.com/Little-Book-Common-Sense-
Investing/dp/...](http://www.amazon.com/Little-Book-Common-Sense-
Investing/dp/0470102101/) first.

It's very concise but it will serve you well.

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kenjackson
Is anyone else kind of disappointed when they see dilbert.com listed as the
URL for a story, but there's no Dilbert cartoon on the page?!

~~~
jamaicahest
Nerdrage!

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blogimus
I first heard about index funds from "The Motley Fool Radio Show." Figuring I
have the choice of dedicating at least a good chunk of my free time to
understanding financial markets and trading stocks, or just dropping my money
into index funds until I decide I want to play games with my money and then
use that time to surf the web and peruse Hacker News, I chose the later.

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tybris
Here's a simple portfolio: Short sell gold. You can wait a few more months,
but really, short sell gold.

~~~
joezydeco
I'm with you. I'm about to put a healthy bet on GLL (2x short ETF).

You ever getting the feeling we never learn from all of these bubbles? I see
people on every street corner dressed in pimp suits waiving signs to sell my
gold at an abandoned gas station. I see people on blogs telling me gold can't
lose it's value like the US dollar can.

This guy cracked me up:

 _And sometimes not, but nobody has ever gone hungry that had a safe full of
gold when there were riots in the streets (like in Greece now) due to the
debasement of the national currency._

Dude, if you have a safe full of gold, you also probably have enough other
resources to ride out whatever instability is happening. Gold is a metal. It's
not a currency. It's worth about $450 an ounce at the moment.

If you want to survive the apocalypse, stock up on oil or corn.

~~~
anamax
> Gold is a metal. It's not a currency. It's worth about $450 an ounce at the
> moment.

As of 10 minutes ago, gold is selling for over $1100 an ounce, so I'll gladly
buy all that you're willing to sell me for $450 an ounce.

~~~
joezydeco
It costs about $450 an ounce to pull out of the ground and refine. Any price
above that is artificial.

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dandelany
It seems to me that the only thing wrong with "betting on the world's growth"
in this way is that it's all denominated in US dollars... Maybe 20% in a gold
fund like GLD to hedge against the possibility of hyperinflation?

