Index Funds are the Best?

SirKonstantine

SirKonstantine

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Jun 15, 2011
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I was reading I will teach you to be rich ([ame=http://www.amazon.com/Will-Teach-You-To-Rich/dp/0761147489/ref=sr_1_1?ie=UTF8&qid=1366777169&sr=8-1&keywords=i+will+teach+you+to+be+rich]I Will Teach You To Be Rich: Ramit Sethi: 9780761147480: Amazon.com: Books[/ame] non aff btw) and, in it, he suggests that, if you want to save for retirement in the easiest and most cost effective way possible, you should invest in an index fund instead of anything else. This is, of course, unless you are employed and your employer will match your contributions--if that is the case, max out out your retirement fund.

Here are his reasonings:
-Diversity is safety and there is nothing more diverse than an Index fund.
-You only pay a .2% fee whereas it is a 2% fee with other funds. This adds up after 40 years.
-Almost no managers can outperform the market in the long run (see Efficient Market Hypothesis). Therefore, performing at the market rate is the best you can do.
-It costs almost no time to manage an index fund (you just put money in) and, because of the time savings, you can spend your time doing something else.

I asked my finance prof about this and he says the only thing this plan has going against it is that it only works in the long run. Most investors want a return sooner than later.

However, it seems like a smart and efficient plan for me. Discuss.
 


There are lots of ways to make a better return, but if you don't know what to do with it and have 5+ years before you need it, putting it in an index etf and forgetting about it works well.
 
I use S&P 500 etfs, which is all or mostly large cap I believe.

I haven't really looked into how small and large cap funds compare over the long term, so idk. I believe small caps do well out of a recovery. The stock market has been recovering for like 3 years now, so now may be a bad time to buy small caps. But, I'm not totally sure, I'm not very knowledgeable on the differences between small, mid, and large cap.
 
Hello friend,

Why invest index funds for make little money when can follow mgrunin and make big money every day?

Good luck bro
 
If you invested into S&P 500 (index) ten years ago then only this past month would you finally be above your entry level.

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In other words, you just had your money doing absolutely nothing for you for a decade.

A good hedge fund will be able to replicate S&P's annual gains and more, while greatly limiting the downside when the market goes into a correction.

My girlfriend works for an investing firm that sets up meetings between investors and hedge funds. As part of her job she distributes their portfolio, and every now and then I take a peak. Basically a hedge fund would be considered successful if they replicate S&P gains but shed much less points than S&P does during a correction. This past week this one firm was only down 4% in 2008 when the markets had the huge crash. That was pretty impressive considering that S&P dropped 35% during same year.
 
mGrunin said:
If you invested into S&P 500 (index) ten years ago then only this past month would you finally be above your entry level.

X9h9THY.png


In other words, you just had your money doing absolutely nothing for you for a decade.
Click to expand...

That's a misleading argument. Because you are never supposed to invest in index funds all at once. You invest in it over time, at regular intervals so you average in - you end up buying some at highs and some at lows but never all at high or all at low. For instance, for most people who earn a wage, they put away a percentage of their pay every month towards indexing.

Over time, as the economy, the index will follow and your investment will grow proportionately.

Having said that, the GDP growth over the last few years has been dismal and the stock market feels like a bit overvalued, so going all in right now for an index may not be a good idea for the long term.
 
Over the long term (1 year)it's pretty hard to do better than an index fund. Last year I was long probably a dozen stocks and presently maybe 2 have done as well as the s&p 500. Impossible to know what sectors will be hot. Since mid 2012 defensive large cap has done really well and large cap tech poorly. IMHO buy calls on the dips should be easy money
 
cpauser said:
Over the long term (1 year)it's pretty hard to do better than an index fund. Last year I was long probably a dozen stocks and presently maybe 2 have done as well as the s&p 500. Impossible to know what sectors will be hot. Since mid 2012 defensive large cap has done really well and large cap tech poorly. IMHO buy calls on the dips should be easy money
Click to expand...

A year = long term investment?
 
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