UnThreaded | Threaded | Whole Thread (4) | Ignore Thread Prev Thread | Next Thread
Author: JAllen2 One star, 50 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 75381  
Subject: Retirement Mutual Funds Date: 5/26/2001 12:43 AM
Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Recommendations: 0
I must say that I'm not a big fan of others controlling my money and that the vast majority of mutual funds don't out perform the market when tax is taken into consideration. I constantly read articles about how indexes are awesome because of the low taxes, but I have yet to read an article talking about the great mutual funds for IRAs. In IRAs you don't have to consider taxes so there should be some stand out funds for these purposes...anyone know any that may turely show be great for retirement investing inside an IRA?
Print the post Back To Top
Author: bigcaat Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 29922 of 75381
Subject: Re: Retirement Mutual Funds Date: 5/26/2001 2:34 AM
Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Recommendations: 0
I must say that I'm not a big fan of others controlling my money and that the vast majority of mutual funds don't out perform the market when tax is taken into consideration. I constantly read articles about how indexes are awesome because of the low taxes, but I have yet to read an article talking about the great mutual funds for IRAs. In IRAs you don't have to consider taxes so there should be some stand out funds for these purposes...anyone know any that may turely show be great for retirement investing inside an IRA?

Tax efficiency is not the only upside of index funds. One of the other major ones is low fees, which can save you a lot of money over the years. There's also the fact that, out of the thousands of mutual funds out there, there are very few fund managers who can "beat the index."

I would suggest that you post on the "Index Funds" board. Some of those posters can give you much better answer to your question than I, I'm sure.

Index Board Link:
http://boards.fool.com/Messages.asp?mid=15048394&bid=100111

Caat

Print the post Back To Top
Author: jbking Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 29923 of 75381
Subject: Re: Retirement Mutual Funds Date: 5/26/2001 2:48 AM
Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Recommendations: 0
I constantly read articles about how indexes are awesome because of the low taxes, but I have yet to read an article talking about the great mutual funds for IRAs.

Well, here's an article giving 10 funds for retirement:

http://cnnfn.cnn.com/2001/05/17/mutualfunds/q_funds_retire/

In IRAs you don't have to consider taxes so there should be some stand out funds for these purposes...anyone know any that may turely show be great for retirement investing inside an IRA?

The better question here is do you want one fund that tries to do it all or do you want a handful of funds each with different roles? For example, I could see if you want say 100% US stocks that Vanguard's Total Stock Market would be right up there. 80% stocks/20% bonds try Vanguard's LifeStrategy Growth. However, if you want say a mix of a large-cap fund, a small-cap fund, an international fund and something that is aggressive then things get to be a wee bit more complicated.

How complex did you want to go? Answer that and then I could give some samples I think.

JB

Print the post Back To Top
Author: TheBreeze Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 29933 of 75381
Subject: Re: Retirement Mutual Funds Date: 5/27/2001 8:39 AM
Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Recommendations: 2
I constantly read articles about how indexes are awesome because of the low taxes, but I have yet to read an article talking about the great mutual funds for IRAs.

Again, the expected winner would be the class of index funds.
-Low fees: Vanguard 500 index @ 0.2%, vs. managed funds @ 1 to 2 %.
-Index funds don't carry cash. Many managed funds hold 8% (or more!) cash waiting to invest new money, or in anticipation of investor redemptions. This is a big drag in an upward market (which is the long term case). Could this be a cushion in a falling market? I saw a graph of fund cash holdings superimposed on market performance over time. The funds seemed to hold lots of cash at the wrong times, so the bear market cushioning effect usually wasn't there, even though the drag was present on the way up.
-Trading costs are usually hidden. John Bogle estimated managed funds lose around 0.6% to trading costs, according to his last book. These are the trading fees associated with buying and selling stocks--turnover equals more costs.

So, the managed funds are sailing into a 2% to 2.5% "headwind," even without considering the tax implications of turnover. Everyone taken together IS “The Market,” and thus cannot BEAT the market. So, we expect to underperform by the cost of the expenses. Again, some funds WILL beat the indexes, but the average won't.

So, even in a regular account (not tax exempt/tax deferred), the well run index funds have a lot going for them. There will always be some funds that will beat the index, but you don't know what funds these are in advance. In the '94 to '99 period, I believe something like one out of eight outperformed the S&P500 index funds. Even if you manage to be lucky enough to have picked an outperforming fund, new money will come flooding into such a fund, and the manager may have to change his style. The extra money can cause the manager to invest in less stellar stocks or less researched stocks, since the money has to go somewhere. Managed funds and fund managers are also rated and ranked on a quarterly basis, and many are thus encouraged to have a short term focus.

I wrote "well run index funds" above, since some index funds charge a load (!!!) and some have high fees. I exclude those from being termed "well run." (Although they may be well run for the management firm, higher costs sure don't help the investor.)

Another bit: If you have stocks & stock funds plus bond & bond funds, hold the former in your taxable account to take advantage of the lower cap gains rates. You also have some control over when you incur gains--if you don't sell the stocks, you don't have the gains, except for dividends. (Stocks sold in the funds incur gains.) Hold the latter in your tax-deferred accounts, since bond interest is taxed at the regular rate, just like withdrawals from IRAs/401ks. If you only have IRAs/401ks, that split doesn't apply, and of course, the Roth IRA is tax free.



Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Print the post Back To Top
UnThreaded | Threaded | Whole Thread (4) | Ignore Thread Prev Thread | Next Thread
Advertisement