UnThreaded | Threaded | Whole Thread (7) | Ignore Thread Prev Thread | Next Thread
Author: WSF Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 76421  
Subject: Conflicting Info Date: 10/12/1998 2:37 PM
Post New | Post Reply | Reply Later | Create Poll Report this Post | Recommend it!
Recommendations: 0
Just had a meeting with my full service broker. I mentioned that I was curious about the fact my AIM funds were under performing the S&P
500 and, say, the Vanguard Index 500. His comments to this fact were as follows:

1) You buy funds based on your goals (good point)

2) Do you want your retirement $ dependent upon the S&P 500, which can be risky or under performing based on the timing?

3) Yes, a large number of mutuals have been outperformed by the index funds in the last few years, but he thinks this will change and you'll
see mutual funds kick back ahead! "He doesn't buy yesterday's winners today"

4) He firmly stated that since 1950 mutual funds have historically outperformed the S&P and Dow.

5) Buying funds is an art, not a science!

6) Said paying expense ratio fees was a good thing, as it takes money to make money. (he didn't comment on 12b-1 fees)

7) Said the S&P was not a particularly good benchmark. The more relevant benchmark is one based on your goals and objectives. Rather
banks savings rates were better.

8) Basically slammed "getting on the internet for about 30 minutes and picking out some good funds" (i.e. VFINX).

I'm confused. I want to move my AIM funds into an index fund as safe harbor until I've built up enough capital/knowledge to buy into the FF
or other program. Therefore, my thinking is that funds are not part of the long-term picture anyway, but he made some emphatic and
contrary points to the general consensus at TMF re mutual funds.

I'll not include any info re his general demeanor and attitude which was predictable. I'll let you imagine that, but he'll never work for me
again.
Post New | Post Reply | Reply Later | Create Poll Report this Post | Recommend it!
Print the post Back To Top
Author: 2gifts Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 5992 of 76421
Subject: Re: Conflicting Info Date: 10/12/1998 3:19 PM
Post New | Post Reply | Reply Later | Create Poll Report this Post | Recommend it!
Recommendations: 0
1) You buy funds based on your goals (good point)
And isn't one of your goals that the fund should increase in value over time?

2) Do you want your retirement $ dependent upon the S&P 500, which can be risky or under performing based on the timing?
Let's see, it's retirement money. I would assume that means you've got a lot of time before you need it. So what's market timing got to do with it? Aren't you planning on being in it for the long-term?

3) Yes, a large number of mutuals have been outperformed by the index funds in the last few years, but he thinks this will change and you'll
see mutual funds kick back ahead! "He doesn't buy yesterday's winners today"

And he thinks this will changed based on what data, exactly? Sounds like intuition to me, so what makes his intuition better than say, yours or mine? And exactly how much commission is he making if you buy these funds or losing if you don't buy them?

4) He firmly stated that since 1950 mutual funds have historically outperformed the S&P and Dow.
Again, the data for this? Everything I've seen has shown the S&P to be outperforming. Is he picking one particular mutual fund for this statement, which I'm sure there must be one that has done well?

5) Buying funds is an art, not a science!
And he's a better artist than you? How much is this guy being paid?

6) Said paying expense ratio fees was a good thing, as it takes money to make money. (he didn't comment on 12b-1 fees)
He's kidding, right?

7) Said the S&P was not a particularly good benchmark. The more relevant benchmark is one based on your goals and objectives. Rather
banks savings rates were better.

As I said above, wasn't one of your goals to increase the value of your account, and most likely stay ahead of inflation? So here we have a stockbroker telling you, essentially, not to buy stocks but to just put all your savings in a bank?

8) Basically slammed "getting on the internet for about 30 minutes and picking out some good funds" (i.e. VFINX).

I'm confused. I want to move my AIM funds into an index fund as safe harbor until I've built up enough capital/knowledge to buy into the FF
or other program. Therefore, my thinking is that funds are not part of the long-term picture anyway, but he made some emphatic and
contrary points to the general consensus at TMF re mutual funds.


After all he's said, which makes very little sense to me other than to give you reasons why you need to continue supporting the lifestyle to which he's become accustomed, you're actually thinking about his advice seriously? Seems to me that the only thing he gave you were all the reasons why you shouldn't be cutting out his commission and not one shred of any plan or way that he intended to make your account grow more than the cost incurred by his commissions and the amount you would be making if you just went with an index fund. Given that you gave him the boot, I would think you'd do the same with his advice.

Sounds like you really do know what you want to do, and you're second-guessing yourself based on this guy's nonsense. Perhaps you need to take some more time to research your particular investment ideas and understand more how they support your goals, but that's not the same thing as following what seems like advice that is more in someone else's interest than yours. Since it's your money that's being affected, I would think you'd want your particular needs put ahead of any one else's [like the broker's need to earn a living].

Just my $0.02. This one sort of hit a nerve with me.

Post New | Post Reply | Reply Later | Create Poll Report this Post | Recommend it!
Print the post Back To Top
Author: DownwardSpiral One star, 50 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 5993 of 76421
Subject: Re: Conflicting Info Date: 10/12/1998 3:25 PM
Post New | Post Reply | Reply Later | Create Poll Report this Post | Recommend it!
Recommendations: 0
Ah, the ramblings of the Wise!

I don't have any of the numbers to give back to you. This list of points is far wider-ranging than the retirement board.

From what I have read:

--Modern Portfolio Theory (MPT) has found that the PRIMARY factor for returns is asset allocation--what percentage have you in cash, bonds, various classes of stock (e.g., large cap, small cap, etc.), etc.

--A logical outgrowth of this is to invest in these asset classes (which have characteristic rates of return) through the lowest-cost means available. Typically, this means index funds.

--Around Fooldom, other techniques have been used to define an "asset class". Instead of using a set of members defined by Morgan Stanly, Standard & Poor's, or others, research has shown other techniques which seem to have a typically large characteristic return. Thus, are born Dogs of the Dow, etc. etc.

I believe most of the broker's statements can be refuted. Perhaps, for you, this person gives you advice which is worth the extra expenses. I think that he is blowing smoke on some of the points, particularly on mutual funds beating the S&P consistently.

By the way, you might want to ask him why it's better to compare against bank savings rates? Perhaps because his alternatives don't compare favorably with S&P 500 returns, which Vanguard can come very to duplicating?

Post New | Post Reply | Reply Later | Create Poll Report this Post | Recommend it!
Print the post Back To Top
Author: gapfan Three stars, 500 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 5996 of 76421
Subject: Re: Conflicting Info Date: 10/12/1998 6:16 PM
Post New | Post Reply | Reply Later | Create Poll Report this Post | Recommend it!
Recommendations: 0
I won't argue the specific points about that broker but I tend to think most of what he told you is true. Please consider this, and age plays a big role here. If the broker is 55 years old or more, he is quoting his longer term experience. (I'm 65.) I think that mutual funds may outperform again but am not sure. One point I wish to emphasize is to remain open to all information you get, try to recognize how it applies to you, and try to get the message behide the words.

When sector funds started, I seriously considered getting into them as a compromise between individual stocks and straight mutuals. I liked telecommunications at the time but didn't know which companies. (Look at some of the long term results of some of Fidelity's sector funds. They range from outstanding to very poor.) The S&P has to hold their same mix regardless. They have been very good the last years because the market has been good.

Now that I don't research individual stocks or groups anymore, a balanced or equity income fund suits me. They must be absolutely boring to an active investor.

If you are in your first 5 to 10 years of active investing, I think you are probably an apprentice. You gain a bit of experience when you call your full service broker and give him a list of 20 stocks to sell at market and don't even ask about price on any of them, as I did in '82. I found I had a problem as I paid margin interest at 21.5%, a crashing market, and margin calls far sooner than I expected.

Just that it takes time to learn any field, and asking who is right is a question that I don't think can be answered for you. I personally chose to do my own research better so I could leave the full service for a discount broker who gave no advice.

All of this is just one opinion, mine, and may do nothing for you but trigger a question of "what are you expecting?"

Good luck on your investing! gapfan :-)

Post New | Post Reply | Reply Later | Create Poll Report this Post | Recommend it!
Print the post Back To Top
Author: TMFPixy Big gold star, 5000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 5997 of 76421
Subject: Re: Conflicting Info Date: 10/13/1998 5:24 PM
Post New | Post Reply | Reply Later | Create Poll Report this Post | Recommend it!
Recommendations: 0

4) He firmly stated that since 1950 mutual funds have historically outperformed the S&P and Dow.

In-ter-est-ing. Did he give you the brand name of whatever it was he was smoking? My data show that 75 equity funds existing in 1950 are still in business today. Of that total, precisely 4 have outperformed the S&P for the past 20 years. Golly, that's a strong showing! I'm sure glad he knows his history.

6) Said paying expense ratio fees was a good thing, as it takes money to make money. (he didn't comment on 12b-1 fees)

That's a classic we all should remember. John Glassman wrote an article in the Washington Post last week entitled "Beware High Fund Fees." He had CDA/Wiesenberger, a firm that tracks mutual funds, compare the fees and performance of load and no-load funds. The 704 equity funds in the study that charged 0.51 percent to 0.99 percent had an average annual return of 21.13% over the past three years. The 749 funds that charged 1.50 percent to 1.99 percent averaged just 18.68% per year, a difference that is larger than the difference in fees alone. A reasonable person could conclude that the lower fee funds not only are cheaper, but they are managed better, too.

IMHO, you're better off without this clown.

Regards….Pixy


Print the post Back To Top
Author: zgriner Big red star, 1000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 6001 of 76421
Subject: Re: Conflicting Info Date: 10/13/1998 10:31 PM
Post New | Post Reply | Reply Later | Create Poll Report this Post | Recommend it!
Recommendations: 0
This is too good to resist. Let's address each statement:

1) You buy funds based on your goals (good point)
Yes, that is absolutely true. So, the question is, what is your goal: Do you want your capital to increase in value through general equity investments, and without the hassles of picking your own stocks or trying to figure which fund will do better next year? If the answer is yes, then an s&p500 index fund is the way to go. If you have a specific investment style that you like (ie. small-cap, international, equity income, value, contrarian, etc), then invest in one of these type funds.

2) Do you want your retirement $ dependent upon the S&P 500, which can be risky or under performing based on the timing?
Of course, you should have your retirement dependent on AIM funds. What is the criteria that the risk is based on? Being fully vested in the stock market, as you would be with an s&p500 fund, can be risky, since the market goes up and down. And regards to timing...who's timing? Some funds try to time the market by getting out to 'lock in profits' (and returns) when it looks like the market is going down, or to keep cash around when they think the market is too expensive and headed for a fall. If you are investing for the long term, you are dealing with paper risk.

3) Yes, a large number of mutuals have been outperformed by the index funds in the last few years, but he thinks this will change and you'll see mutual funds kick back ahead! "He doesn't buy yesterday's winners today"
The Foolish answer is: On average, its been more than "the last few years"

4) He firmly stated that since 1950 mutual funds have historically outperformed the S&P and Dow.
See above

5) Buying funds is an art, not a science!
Exactly! So why not go with the flow since alot of artists (fund managers) seem to have failed at that art (see above)?

6) Said paying expense ratio fees was a good thing, as it takes money to make money. (he didn't comment on 12b-1 fees)
I read somewhere, recently, that low fund expenses correlates with higher, not lower, returns. Possibly because the lower fees don't pull the returns down, all things being equal.

7) Said the S&P was not a particularly good benchmark. The more relevant benchmark is one based on your goals and objectives. Rather banks savings rates were better.
Only the part about your goals are true, since small-cap funds compare themselves to the Russel 2000 index, international funds to the Morgan-Stanley index, etc. So we go back to the original question...what are your goals and how do you want them met?

8) Basically slammed "getting on the internet for about 30 minutes and picking out some good funds" (i.e. VFINX).
I am curious how the broker picks the "good funds". Are they the ones sold by his company? Are they the ones that charge 5-8% loads, which pay him and don't get you better returns over no-load funds?

I'm confused. I want to move my AIM funds into an index fund as safe harbor until I've built up enough capital/knowledge to buy into the FF or other program. Therefore, my thinking is that funds are not part of the long-term picture anyway, but he made some emphatic and contrary points to the general consensus at TMF re mutual funds.
I am confused, too. He said above that fund picking was an art and that the fund managers were underperforming the s&p500 index. Seems like a good reason to go into the s&p500 index, unless you want your broker to pick your funds for you, and charge you for the privilege. Unfortunately, you suffer from FUD (fear, uncertainty, and doubt), which is understandable. What if your broker is right; the s&p500 underperforms the AIM funds for the next few years? No one is prescient, all we have is historical information.

Before you become completely Foolish, make sure you are doing it because you believe in what you have read here.

Zev

Post New | Post Reply | Reply Later | Create Poll Report this Post | Recommend it!
Print the post Back To Top
Author: DownwardSpiral One star, 50 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 6004 of 76421
Subject: Re: Conflicting Info Date: 10/14/1998 8:47 AM
Post New | Post Reply | Reply Later | Create Poll Report this Post | Recommend it!
Recommendations: 0
Thanks, Pixy, for digging out some supporting numbers. Your references confirm what I had read over the past years, but I didn't have any hard numbers to back it up.


Print the post Back To Top
UnThreaded | Threaded | Whole Thread (7) | Ignore Thread Prev Thread | Next Thread
Advertisement