No. of Recommendations: 1
Vanguard 500 VFINX has 25 % exposure (125 stocks out of 500) in technology. I keep getting told this is a low risk investment for long term Really!!!


Morningstar Quicktake® Report | Portfolio Add VFINX

Vanguard 500 Index VFINX

Market Capitalization % of Portfolio
Giant 55.73
Large 33.03
Medium 11.06
Small 0.18
Micro 0.00


Investment Valuation
Stock
Portfolio Rel to
S&P 500
Price/Book 6.8 0.9
Price/Earning 30.1 1.0
Price/Cash Flow 22.6 1.0



Sector Weightings
% of Stocks Rel to S&P 500
Utilities 2.7 0.9
Energy 6.7 0.9
Financials 16.7 1.0
Industrials 11.1 0.9
Durables 1.7 0.9
Staples 6.1 0.9
Services 11.2 0.9
Retail 6.3 1.0
Health 12.4 0.9
Technology 25.2 1.3 <--------------------

Data through 01-31-01

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No. of Recommendations: 4
belairpatrol writes,

VFINX has 25% exposure in technology. I keep getting told this is a low risk investment for long term Really!!!

Three points.

1. There are probably thousands of stocks in the technology sector. Investing in just 125 of them is not overconcentrating.

2. All technology stocks are not doomed. Technology got a bum rap recently because a lot of the smaller, newer dot-coms were very speculative and weren't poisted to make any earnings any time soon. Such is not the case with the largest tech companies.

3. If a sharp stock rebound ever happens, the technology sector will likely lead the way, as that's where a lot of the action has been in the past, and will continue to be.
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No. of Recommendations: 1
2. All technology stocks are not doomed. Technology got a bum rap recently because a lot of the smaller, newer dot-coms were very speculative and weren't poisted to make any earnings any time soon. Such is not the case with the largest tech companies.

I agree. There is a difference between a dot-com and a technology company. The anal-ists just haven't figured that out yet.

Most of the dot-coms just use technology. That's like saying a company is an electric company just because they use electricity. Selling books, CD's, or anything else for that matter, online does not make them a technology company any more than selling them in a store with the lights on makes them an electric company.

The real tech companies, like CSCO and INTC, will survive. They will not get the free ride to the sky that they got during the dot-com craze, but they will get by on things like earnings.
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No. of Recommendations: 1
Sector  % of Stocks Rel to S&P 500 
...
Technology 25.2 1.3 <--------------------

What you are likely viewing is the artifact of the tech stock de-valuation. When a sector plumments in value it will cause 'tracking error' by the mutual fund. VFINX historically has had less tracking error than other S&P500 index funds.

When I look at the M* data on the Quicken site, I see a more balanced situation one month later re: sector weighting
From http://www.quicken.com/investments/seceval/?symbol=VFINX&mcm=retrisk&mcm=holdings
"Data updated monthly. Current as of 02/28/2001"
================================

Sector VFINX % S&P500 %
Util 2.68 2.82
Ener 6.67 6.85
Fin 16.68 16.05
Indu 11.05 11.32
Dura 1.73 1.6
Stap 6.12 6.81
Srvc 13.09 11.68
Ret 6.28 5.74
Health 12.4 13.64
Tech 23.31 23.49

================================
To belairpatrol specifically: the S&P500 has been and
always will be a large-cap and growth-oriented index of companies. At times a sector will become highly valued relative to the other sectors. People typically start to complain that the index is 'under-weighted' in the sector, and that it is an 'old-economy' index and too slow to adapt to the 'new paradigm'. The S&P500 committee typically makes changes to the index which add companies in the new sector. I have seen that at its peak the tech % of the S&P500 was 35% or so. Of course very few people were concerned at this time since the NASDAQ composite was approx 5000 (teehee!).

Then as the sector valuation drops, other people start to complain that the index is now 'over-weighted' in this sector and is 'dangerously concentrated'. Of course then the index composition continues to change and the sector % drops.

Again I quote J. Bogle:
"A Moving Target
That is not to say the S&P is an easy target for an investor—or even an average index fund manager—to track. Change it does! Indeed in the past 20 years there have been an astonishing 489 changes in the 500 Stock Index. These are not trivial changes; on average during that period, each year has resulted in the addition of stocks accounting for 2.8% of the index's capitalization—an aggregate two-decade replacement equal to 58% of its value."

The S&P500 index is a dynamic system that reacts to market influences -- just like most investors. That is part of the control you give up when investing in an index. If you want control, purchase stocks directly and be your own 'committee'.

BestRegards,
FrankZ
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No. of Recommendations: 5
Once again:

Are you trying to convince us or yourself? This is the second (now third) thread and the horse died a while back. Were not changing your mind, your not changing ours. If I could go back ten years I would buy Cisco and Dell, and I would have sold in early 1999 to buy Qualcom, and last year I would have sold and bought Phillip Morris. And now I would be living off off the dividends and probably have over 100,000,000.

AOL message boards are calling you...
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No. of Recommendations: 13
belairpatrol you have convinced me. A 23-35% tech weighting in vfinx is unreasonably high. The only rational thing to do is buy your fidelity select electronics (98.5% tech accordnig to morningstar) I am not sure why I didn't see this before!
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No. of Recommendations: 1
Ok, let's do this: Chart the tech % of the S & P 500 over a couple of decades.

http://www.barra.com/research/sector_charts.asp and select S & P 500 for the Index and Technology for the sector and voila you will see this chart showing how the technology component varies from the early 90s 8% roughly to the late 2000 high of slightly over 34%.

Back in November of 1980, Energy was 29% of the S & P 500.(Around then it was 20% for a couple of years and now is more like 7%. See, the rotation yet?(Plug in different sectors to get various slicings of the 500 in terms of sectors.) Do you get this concept that at different times different sectors will have their boom or are the eyes still to glaze over?

JB
*Believing in the S & P 500 as part of his investing plan since 1998*
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No. of Recommendations: 0
Morningstar shows 23 mutual funds that are 10 years old that beat the index fund, specifically Vanguard 500, in 3 year, 5 year, and 10 year.
I like my investments to return double the CD rate for the risk of the market. When I see VFINX returning 2.91% over the last 3 years, and is down 12.83% YTD, and then I see a no load mutual fund that 8.17% over 3 years, and is down 8.46%, and beat VFINX at 5 year and 10 year, I think I'll invest with the better returning mutual fund. By the way, I cashed out everything April 14, 2000 and bought 5 CD's at 7 3/4% and still have lots of cash in Money Market Funds.

Index Funds just ain't that good???
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No. of Recommendations: 9
Belairpatrol

Your posts get unbelievable to read.....one minute you are touting the Fidelity Select Electronics fund like it's the cure all for old age, and the next minute you are saying:

. By the way, I cashed out everything April 14, 2000 and bought 5 CD's at 7 3/4% and still have lots of cash in Money Market Funds.

Index Funds just ain't that good???


SO you sold your FSELX???? or did you ever own any of it, or just wish you did looking back 10 years with 20/20 hindsight? Fund envy?

Yeah, now we are supposed to believe you are 100% in cash, looking for the 'bottom' to get back in.

You've got about a 2 in 100 chance of beating the index fund, so good luck ........your posts have lead others to show that the probability of a fund with a superior ten year record to again beat the index for the next ten years is about 0.04%......not great odds.....4 in a thousand........

Of course, if you read Bogle's book, you would learn that being out of the market for something like just 40 days in the past 20 years would have cost you more than a third of your total returns.....if the market goes up 15% in one week, and you are not in it, you could lose a years worth of gains.

I imagine you wrote one heck of a check to Uncle Sam last Apr 15th......further eroding your future earnings......

What? No faith in FSLEX??????? after all, you claim it had fantastic 10 year run, and you kept telling us it was going to do the same for the next tenyears...why would you bail out of such a winner, especially when most felt the market still had room to run, and long term was going nowhere but up?

The scepticism about you every owning FSLEX mounts...


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No. of Recommendations: 5
Am I the only one here who thinks you are either:

a) a fund manager trying to steer us gullible souls away from the Vanguard 500 index

or

b) a disgruntled former employee of Vanguard?

Perhaps I should create a poll!
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No. of Recommendations: 1
airwid:
Am I the only one here who thinks you are either:

a) a fund manager trying to steer us gullible souls away from the Vanguard 500 index

or

b) a disgruntled former employee of Vanguard?


I prefer
c) Vanguard chairman John Brennan trolling the boards to 'educate' folks on the volatility of sector funds.

"Get your index fund shares! Fresh roasted index fund shares!"

Baseball opening day in 48 hrs!

Bye
FrankZ
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No. of Recommendations: 0
Pick your time frame(Are we looking at 1 day returns, 1 week, 1 year, what?), how often you want to adjust(Do you change things daily, weekly, monthly, quarterly, semi-annually, annually, every 2 years, every half-decade, every decade, every couple decades?) and I think in some cases index funds can look bad. I do think now is a time when the short-term(And even 5 years IMO isn't that long) risks of stock rear their head and so what happens? Some people who thought they were LTBH flee to the sidelines or show their market timing stripes. Others like me, stick to my guns believing in the long run things will be alright I did know stocks go down and to be prepared for it(Maybe you missed the lesson of stocks going down 1 in 4 years on average and some bad bears from before I wonder?). The question for you is are you OK with how you invest and how confident are you in achieving those goals? I'm 99.9% OK with my investments and 99.9% confident I'll achieve my goals(Heisenberg uncertainty accounts for the remaining .1% in each case.)

http://www.vanguard.com/bogle_site/bogle_speechesequity.html has some interesting notes IF you are the type to invest and not change often.(In almost 30 years over half of the funds died off and only a couple handful beat the broad market aka the Wilshire 5000.)

JB
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No. of Recommendations: 1
I am retiring in 60 days. I have $200,000 in cash to invest. I have my local Wells Fargo offering a liitle over 5% in CD's giving me an additional $10,000 a year
with safety. I am willing to try a little risk for a 10% return, and all I hear from my accountant, the trust division at Wells and my still working friends is Index Funds. especially VFINX. I am looking at the line score of VFINX
10 year Tax adjusted 15.35
5 year Tax adjusted 15.12
3 year tax adjusted 6.55

1 year return -21.08
1 month return -5.92
THIS is not the kind of risk I am willing to tolerate.
If someone told me 5 years ago there is a potential risk of dropping 21% in 1 year, I would think they were talking about a dot com company, not a low risk index fund. Guess the bank gets my money.

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No. of Recommendations: 1
belairpatrol writes,

I am retiring in 60 days. I have $200,000 in cash to invest. I have my local Wells Fargo offering a liitle over 5% in CD's giving me an additional $10,000 a year with safety. I am willing to try a little risk for a 10% return, and all I hear from my accountant, the trust division at Wells and my still working friends is Index Funds. especially VFINX. I am looking at the line score of VFINX
10 year Tax adjusted 15.35
5 year Tax adjusted 15.12
3 year tax adjusted 6.55

1 year return -21.08
1 month return -5.92
THIS is not the kind of risk I am willing to tolerate.
If someone told me 5 years ago there is a potential risk of dropping 21% in 1 year, I would think they were talking about a dot com company, not a low risk index fund. Guess the bank gets my money.


If you're buying an FDIC-insured CD, you should check out the yields on www.bankrate.com . They are probably at least 1/2 a percentage point higher than what Wells Fargo is offering you.

intercst

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jbking wrote, "Some people who thought they were LTBH flee to the sidelines or show their market timing stripes. Others like me, stick to my guns "

I speak for the LTBH's who have shown their "true stripes" as you say.

If I had put myself in the efficient frontier on the day I retired...only 8 months ago, I would now be part of the efficient _work force_ again.

I don't think this is Sept 1929, but it ain't Christmas either...if I had been able to retire in 1994 at the same level, then my portfolio would have grown immensely and the drop would not have put me below par. Then I could hold forth to all of those simpering slobs who back out when the going gets tough.

The fact is, I NEVER sell equities at a loss, and never will, but when you don't have tread on your tires you shouldn't travel too far or too fast. I WILL reach the efficient frontier and stay there, but I will do it with as few nosebleeds as I can muster.
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No. of Recommendations: 4
"If someone told me 5 years ago there is a potential risk of dropping 21% in 1 year, I would think they were talking about a dot com company, not a low risk index fund.

Why? Even companies like General Electric have dropped 20,30,40% in the past year.

The stock market is not a guaranteed money making machine in the short term. It is not guaranteed in the long term either.

All you have is past history and trends. If you believe companies will exist and will continue to grow earnings, then stocks will do the same.

THere is also risk in holding CDs...interest rates might go to 3%. Inflation might be 3%. In that case, you might run out of money in 5 or 10 or 20 years.

It sounds like you need to do some serious reading of Bogle on Mutual funds, and on others in investing in general.

Money in the stock market is there for the long haul. That is at least five years, and preferably a 10 or 20 year time horizon.

Yes, believe it or not, the stock indexes have dropped 50%!!!!! in two years (1973 and 74). Haven't you read about that? Think about people who sunk "all" their money into the market in 1972.......

How quick people forget 1987......

However, over the *****long haul**** investors have been rewarded by being in the stock market.

You should be getting well over 5% for your FDIC insured CDs.....

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No. of Recommendations: 11
<1 year return -21.08; 1 month return -5.92.
THIS is not the kind of risk I am willing to tolerate.
If someone told me 5 years ago there is a potential risk of dropping 21% in 1 year, I would think they were talking about a dot com company, not a low risk index fund.>


After reading all of your posts on three different threads, I get the impression that you have not actually read the responses. Your comments have been all over the board. You raved about a Fidelity Electronics fund because it had a better 10 year record than VFINX (something only a miniscule number of funds were able to do). You conveniently ignore that the same fund is down some 57% in the last year. Now you say you are all cash, which makes many of us doubt that you ever owned the electronics fund, unless you are the worlds best market timer.

Now you say a 21% loss in one year is too steep. It is a LOT less steep than 57%. Buying VFINX is neither a right or wrong move. One buys it knowing full well that you are reducing both your upside and downside risk in comparison to a single sector index fund or a single stock. VFINX's gains were much less than the Nasdaq gains in 1999. Similarly, the losses of VFINX were much less than Nasdaq's in 2000.

Contrarian views are welcome on this board. I for one, welcome them as they may provide me with a perspective that I had not considered previously. None of your posts present a reasoned rebuttal to the many counter points of view presented. There are some on the RE board who would never buy VFINX. That is because many of them have no MF's at all. RE is not a race. Risk is present in all investments. Not everyone has the same tolerance for risk. For some, the average returns of VFINX complement their level of risk vs reward. They know intuitively or through experience that when the broader markets are up, the S&P500 will be up too. Likewise, when the markets are down sharply like the last 6 months to 1 year, the index will also be down.

As many others have said, putting all of your assets into CD's carries it's own risks too. As you yourself have seen, the 7.75% CD's you got last April are nowhere to be found now.

If a possible 21% loss in one year is unacceptable to you, I suggest you only have two choices. Stay in cash or lock yourself into a sell strategy that automatically closes out your position any time your holding goes down 10% from your buy price. Before you do anything, you should make sure that your actions are aligned with your needs. Will a guaranteed 5% return meet your LT needs after taxes and inflation? Will you have a 4% or less withdrawal rate? If you are lured into an Electronics fund because you think it will generate gigantic returns, how will you defend yourself from a 57% fall? These are all questions you need to answer for yourself. If you want to discuss them on the board, I'm sure many would join you for a good dialog.


BRG
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Vanguard 500 VFINX has 25 % exposure (125 stocks out of 500) in technology. I keep getting told this is a low risk investment for long term Really!!!

Who told you it was low-risk? That's certainly not how I'd describe it. Vanguard describes it as "moderate to aggressive". (Lowest risk I've seen there is "conservative" highest is "aggressive")

If you want a low-risk investment, the best idea is to go for a money-market account, T-bills, or CD's. The problem with that strategy is that the returns are really low and may not keep up with inflation once taxes are included. So if you want good long-term growth, you have to accept a higher-risk investment.

As those higher-risk (and higher-return) investments go, VFINX does pretty well, primarily because it's diversified, which means that the success or failure of one company doesn't have a huge effect. And it does this with expenses that are about a tenth of the typical mutual fund.

Kris
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