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Hey Choco,

As we've talked before I thought I would chip-in a comment.

The difference between a Vanguard type index fund or ETF index vs. a typical managed mutual fund (ex sales loads) is 0.2% vs 1.5% approx., so 1.3% variance. From 1970-2000, only 6.5% of US mutual funds beat the S&P 500 by 1%. 0.6% beat by 3%. There are also additional taxes with high yearly turnover tax costs on managed funds vs index funds too.

This sort of data which no one seems in the literature demonstrates that the chances of being close to matching the index performance is 6.5% chance. After tax, less that that. So with a 93.5% chance to beat a managed fund, it is extremely difficult to believe any fund will beat the index after expenses. Add that most funds top last year or last decade fail to do half as well the next year or thru the next decade, and it makes it almost impossible to pick one of those few funds that are better long term. Makes it a no brainer.

What is surprising here in the UK is that the Virgin UK index fund with a 1% expense ration has as much money invested as the most popular 0.5% lower cost fund. So even people here who get the index fund message, are only getting part of the message!


I keep things simple: a Couch Potato portfolio (75% total stock market/25% total bond market), an extended market fund to balance out my S&P500 fund in my 401k (and increase my mid and small cap exposure if desired), and a money market fund for short term stuff. I rebalance on my birthday. I sleep fine at night and have a healthy nest egg. I couldn't say the same when I was investing in a managed fund years ago (which ended up being one of those that got caught in that recent fund scandal re: after hours trading!).

I know that many people pooh-pooh index funds, but frankly I don't feel like wondering whether I picked the "right" fund, which would occur if I chose a managed fund. Average performance is good enough for me, and indexing just makes sense to me for my lifestyle and personality.

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