Based on information I read on this site several years ago I placed 100% of my 403b contributions in an S&P 500 index. There was an article in the June 14th Wall Street Journal singing the benefits of "fundamental indexation" versus the traditional "capitalization-weighted" indexes.

Is it time to move my 403b contributions? What's the best strategy for 403b contributions?

Thanks for the expertise!

>> Based on information I read on this site several years ago I placed 100% of my 403b contributions in an S&P 500 index. There was an article in the June 14th Wall Street Journal singing the benefits of "fundamental indexation" versus the traditional "capitalization-weighted" indexes. <<

I'm not saying it's a bad idea, but I dismiss the idea of "fundamental indexing" being true indexing. When you use fundamental indexing, you are weighting a stock's representation in the index by assessing its fundamentals and heavily weighting stocks you think are "undervalued".

That's certainly not a bad thing to do as far as stock picking goes, but as far as I'm concerned it's not indexing. And as far as your 403b goes, chances are you don't have a "fundamental index fund" to choose from.

If you're interested in this, I'd consider splitting my portfolio into the "core" S&P 500 index fund and a "value" fund -- assuming the value fund performs at least inline and has relatively low expenses. If the value fund is also an index -- so much the better in terms of reducing cost. A value fund is usually trying to do the same thing as "fundamental indexing" anyway; it tries to identify stocks the manager thinks are undervalued relative to its fundamentals.

#29

I really don't get the whole idea of fundmanental indexing. Sounds like active money management to me, and we all know that active fund managers for the most part fail to beat the S&P.

I read Siegel's books but I still am not convinced. The one good thing about these alternative ETFs/Mutual funds is that they emphasize dividend yields.

Is it time to move my 403b contributions? What's the best strategy for 403b contributions?

I think you're doing fine as long as you are not within 5-10 years of retirement. You are probably up a bit over the past several years. Large cap US stocks, which make up most of the S&P 500, have underperformed the market for some time. This means that they may outperform the market in the future (reversion to the mean).

Many "experts" think that we are in a "low return world" and I don't disagree. But paying for active management (which I think would involve fundamentally indexed funds) to increase returns hasn't worked well in the past and there no reason to think that "this time it's different".

Even if historical studies have demonstrated the benefits of fundamental weighting, once too many people adopt an investing strategy, it tends to underperform.

As for the "best" strategy, it really depends on your risk tolerance and time frame. You might want to consider some diversification into small caps and foreign stocks, but do some research first.

Adenovir

You might want to consider some diversification into small caps and foreign stocks, but do some research first.

That is my main concern with a S&P only investment. In the greater scheme of things, 500 stocks is not very well diversified.

I like targeted investments for small things like a Roth but for my main retirement account, I would tend to want more diversity including more small and mid and some international. Historically speaking, small, mid, and international have all outperformed domestic large cap (and domestic stocks only represent about 40% of the world's stock).