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lockmat

Active vs. Passive Investing, Index Funds/ETFs & John Bogle

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I recently saw the Frontline episode about 401ks and investing in which John Bogle, founder of Vanguard spoke ill of active investing and praised passive investing in index funds, in which he created the first.

Bogle and other passive investment advocates harp on studies that say in the long run index funds always beat out active managed funds.

It all sounds very logical, safe(er) and doable for someone who is next to clueless about the stock market, like me.

Does anyone here invest in index funds or ETFs? Am I believing these people too easily? It seems like you still have to be wise about when to buy and sell (somewhat "actively" participating) and it's not as simple as buying and forgetting.

Good summary article: http://www.pbs.org/wgbh/pages/frontline/business-economy-financial-crisis/retirement-gamble/index-funds-the-key-to-saving-for-retirement/

Here are some videos that I thought have been very helpful on this topic:

http://youtu.be/mF-N8WSuXtA

http://youtu.be/mJA2bqHLr9k

http://youtu.be/j3hg0JPCqRA

Frontline

http://www.pbs.org/wgbh/pages/frontline/retirement-gamble/

Mark Cuban explaining passive funding is for morons. (He is kind of convincing, too, but he's much more experienced than the average investor).

http://youtu.be/u5Pp1HEKSPM

Edited by lockmat

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If you don't have the time or interest in researching companies/stocks/funds and need a simple solution for your investments, this is it. I don't think an index fund beats "all" investments as there are always some things that are performing better at any given time, but you have to spend the time and brain cycles to ferret those out and it might not be worth it unless you've got a passion for it. Fact is, though, that even the "experts" are frequently wrong and that's what make index funds a good alternative. Worst possible thing, in my opinion, would be to turn your money over to an investment adviser. Not that it's a bad thing to get some advice, and some of it might be good, but I find it's better to keep direct control over your investments rather than letting someone else do it for you (and get a commission for doing so).

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To actively trade can be a nightmare. 

 

I've run scenarios of when I would have sold and traded stocks and I would have done horribly.   I've looked at the various Funds and have invested in a few over the past decade, but what is sad is that I blindly invested after some research and have outperformed the funds.

 

Buy and hold may not be popular, but it is generally more successful.  Even my dog stocks have surprised me (ENRJ being one of them).

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Yes, a buy and hold approach works best if you don't know much about investing (especially in an index fund). I've seen that Frontline episode and agree that expenses are the major killer you need to watch for when investing in a fund. Another thing "sort of safe" thing to do is buy stocks in companies that pay dividends and will probably be around for another 30 years (i.e. GE, DOW, etc). I enrolled in Scottrade's FRIP program (free) and have it buy additional stocks with the proceeds from the dividends and you don't pay any transaction fees.

 

Last thing to remember, buy when everyone is scared. Just bite the bullet and do it. A couple years ago everyone was freaking and selling in their 401k's. Companies like DOW (went down to 7, now at 35) were insanely cheap and people were afraid the world was done for (blinded by either political/religious bias).

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That is what i usually do. I keep some excess funds I'm reserve for just I'm case a something interesting happens.

As bad as it sounds, disasters make for great buys and excellent returns. ... usually.

I waited too late on Boeings misfortune, though and didn't buy in. Price jumped before I could buy.

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Back in the 90's I got into active trading, almost day trading, for a while. It was a lot of fun to do the research and make the plays but at the end of about 3 years of trading I just about broke even. Fortunately, I only used a small amount for that and kept it separate from my main and retirement investments which were all either blue chip or index. Came out way ahead of day trading on those. Bottom line I've found active trading to be a fun and amusing hobby, but I regard it as just a notch above going to Las Vegas (only because the overall odds in the market are better than those in a casino).

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When bogle speaks poorly of active trading, he isn't even speaking of people like us, he's talking about the pros (and I believe mutual funds?), which is pretty impressive to know that over the long run the pros don't even beat passive investing.

The other major thing I took away from the frontline episode is that not all financial advisors are fudiciaries, which is pretty eye opening.

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There are very strong arguments for index funds instead of stock-picking.  It's not just a matter of having time for research, but in the long run it is generally not possible to consistently beat the market.  Which is strange considering the gigantic funds management industry which has been built around the contrary notion. 

 

 

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