Index Funds Investment Strategies

[Bo Diddley]

I'm wondering what are the best investing strategies when using Index Funds.

Background:
As a government employee, I use what is called the Thrift Savings Plan, and I buy into a mix of five different index funds (government securities, Barclays Capital U.S. Aggregate Bond Index, S&P 500, Dow Jones U.S. Completion TSM Index, and Morgan Stanley Capital International EAFE Index).

A great bonus for me is the low administrative costs. Right now they're around .025%.

So is the best strategy to buy and hold a prescribed ratio/combination of the different funds, changing it as you get closer to your retirement?

Or is it better to change which funds you're investing in based upon market conditions?

I can change my allocations twice per month however I choose, but after that I can only move them into the government securities fund.

[eldiente]

Check out this group for excellent portfolio advice. Bogleheads.org

[byu71]

I'm wondering what are the best investing strategies when using Index Funds.

Background:
As a government employee, I use what is called the Thrift Savings Plan, and I buy into a mix of five different index funds (government securities, Barclays Capital U.S. Aggregate Bond Index, S&P 500, Dow Jones U.S. Completion TSM Index, and Morgan Stanley Capital International EAFE Index).

A great bonus for me is the low administrative costs. Right now they're around .025%.

So is the best strategy to buy and hold a prescribed ratio/combination of the different funds, changing it as you get closer to your retirement?

Or is it better to change which funds you're investing in based upon market conditions?

I can change my allocations twice per month however I choose, but after that I can only move them into the government securities fund.

I don't know what funds are available to you or who the administrator is.

Some will have their own "allocation models" and it can go from conservative to aggressive. If they are really sophisticated they will have both tactical and strategic models. You can look at those and see if they make any sense to you.

[jay santos]

Check out this group for excellent portfolio advice. Bogleheads.org

Seconded.

But basically, your first option is right. Buy and hold and once every couple years make changes to your allocations based on how close you are to retirement.

[byu71]

Seconded.

But basically, your first option is right. Buy and hold and once every couple years make changes to your allocations based on how close you are to retirement.

I am always looking for sources of good information. Their analysis of financial advisors comes straight out of money magazine et.al. school. "They are out to screw you where we here are only in it to help you the investor."

I am not so blind as to say having their heads up their ass on this doesn't mean they don't do good work when it comes to investment advice. I am just making an observation that I hope they aren't out of the Suzy Orman mode.

Oh and sorry Jay your two year hold advice is straight out of Ostrich head in sand land. Portfolio's need to be tweaked when necessary.

[jay santos]

I am always looking for sources of good information. Their analysis of financial advisors comes straight out of money magazine et.al. school. "They are out to screw you where we here are only in it to help you the investor."

I am not so blind as to say having their heads up their ass on this doesn't mean they don't do good work when it comes to investment advice. I am just making an observation that I hope they aren't out of the Suzy Orman mode.

Oh and sorry Jay your two year hold advice is straight out of Ostrich head in sand land. Portfolio's need to be tweaked when necessary.

How do you know when to tweak and how?

When answering, consider this. If you really knew when to tweak and how (vs buy and hold), you will get rich with your own portfolio. The very worst thing you could possibly do is breathe a word of this knowledge to anyone else for fear of it spreading out and becoming common knowledge and thereby killing the edge you have on the market.

[byu71]

How do you know when to tweak and how?

When answering, consider this. If you really knew when to tweak and how (vs buy and hold), you will get rich with your own portfolio. The very worst thing you could possibly do is breathe a word of this knowledge to anyone else for fear of it spreading out and becoming common knowledge and thereby killing the edge you have on the market.

Jay think about it. Tweaking is not the same as all in all out market timeing.

Tweaking is trying to get maybe 1-3% on average above say a buy and hold then change every two years strategy.

You are not going to get so called "rich" using a strategy that gets you an extra 1-3%.

Now that that is settled, great question. How do you kow when to tweak. Well I wouldn't rely on someone who basically is raising money from people to invest. He/She/Me doesn't have the time or background needed to be devoted to it. It would be like some guy who has another occupation trying to do it in his spare time when he isn't doing his regular job.

So, what you do is like you would research a stock. You research the best people who do these allocation (note allocation not trading) and let them do their thing.

Like anything else, I would guess they are more likely to be found somewhere requiring larger sums in order for them to take the account.

That's why I haven't said the option or recommendation of an internet site for someone might not be a good place.

[ERCougar]

Jay think about it. Tweaking is not the same as all in all out market timeing.

Tweaking is trying to get maybe 1-3% on average above say a buy and hold then change every two years strategy.

You are not going to get so called "rich" using a strategy that gets you an extra 1-3%.

Now that that is settled, great question. How do you kow when to tweak. Well I wouldn't rely on someone who basically is raising money from people to invest. He/She/Me doesn't have the time or background needed to be devoted to it. It would be like some guy who has another occupation trying to do it in his spare time when he isn't doing his regular job.

So, what you do is like you would research a stock. You research the best people who do these allocation (note allocation not trading) and let them do their thing.

Like anything else, I would guess they are more likely to be found somewhere requiring larger sums in order for them to take the account.

That's why I haven't said the option or recommendation of an internet site for someone might not be a good place.

1-3% isn't a lot of money? Add 3% to my expected return and I'll retire ten years earlier.

Didn't WSJ used to run a feature where they compared experts' stock picks to a monkey's? Half would beat the money, half wouldn't. "Tweaking" index funds is just stock picking with smaller margins and more diversity--smarter and less risky than stock picking, but putting time into a losing effort. Show me any sort of study to counteract and I'll eat my words. I know a spent an entire term trying to find evidence to the contrary and all I could find was a weak January effect and a weaker weekend effect. Even those are controversial.

I actually got into a very long discussion with a really good financial planner on the subject. Smart guy, articulate, and he basically said that while he considers himself fairly intelligent and that he spends all of his time on this stuff, he still can't make heads or tails of financial statements from companies because of the opportunity to obscure. REITs (the specific focus of our conversation) are no better and he would never dare recommend any specific one without some sort of inside knowledge that would make his advice illegal. His advice: broad-based index funds, keeping a good balance between domestic and international ones, and watching your stock-to-bond ratio.

EDIT: a recent example of the WSJ experiment:
http://www.dailymail.co.uk/news/arti...portfolio.html

[byu71]

1-3% isn't a lot of money? Add 3% to my expected return and I'll retire ten years earlier.

Didn't WSJ used to run a feature where they compared experts' stock picks to a monkey's? Half would beat the money, half wouldn't. "Tweaking" index funds is just stock picking with smaller margins and more diversity--smarter and less risky than stock picking, but putting time into a losing effort. Show me any sort of study to counteract and I'll eat my words. I know a spent an entire term trying to find evidence to the contrary and all I could find was a weak January effect and a weaker weekend effect. Even those are controversial.

I actually got into a very long discussion with a really good financial planner on the subject. Smart guy, articulate, and he basically said that while he considers himself fairly intelligent and that he spends all of his time on this stuff, he still can't make heads or tails of financial statements from companies because of the opportunity to obscure. REITs (the specific focus of our conversation) are no better and he would never dare recommend any specific one without some sort of inside knowledge that would make his advice illegal. His advice: broad-based index funds, keeping a good balance between domestic and international ones, and watching your stock-to-bond ratio.

EDIT: a recent example of the WSJ experiment:
http://www.dailymail.co.uk/news/arti...portfolio.html

I hope this is just a fun discussion and not a debate. I learned early in my career I didn't want a Dr. for a client. They are smarter and know more than anyone else. The losers they never would have picked on their own and the winners were totally their pick.

Now for the fun. I want to revise and extend my remarks.

One can use index funds, that means various index's all the way from large cap stk to health care and bond, to allocate and limit volitility. The limited volitility can enhance a return over the long run. While I think it is crazy to adjust allocations daily, events and circumstances happen quick enough that adjustments will usually be made at least semi-anually or quarterly.

You need to be diligent, informed and well researched in order to pick a manager who can over time out perform a monkey throwing a dart. However, just because a monkey can beat 50% of so called managers, that doesn't mean there aren't some managers out there that can totally kick the monkeys ass.


Note: I would hope no one has ever thought I have claimed to be smarter than the monkey.

[Bo Diddley]

One can use index funds, that means various index's all the way from large cap stk to health care and bond, to allocate and limit volitility. The limited volitility can enhance a return over the long run. While I think it is crazy to adjust allocations daily, events and circumstances happen quick enough that adjustments will usually be made at least semi-anually or quarterly.

You need to be diligent, informed and well researched in order to pick a manager who can over time out perform a monkey throwing a dart.

So what are these managers you speak of? I would like to find either a formula or a person to tell me how to allocate between the index funds available to me. I have seen a couple of formulas, but don't know how reliable they are. Perhaps I should try one for a bit.

[eldiente]

http://www.rickferri.com/

Retired military..... One of the smartest men I've ever met, and an excellent financial advisor.

[byu71]

So what are these managers you speak of? I would like to find either a formula or a person to tell me how to allocate between the index funds available to me. I have seen a couple of formulas, but don't know how reliable they are. Perhaps I should try one for a bit.

It has been a couple of years since I got into a discussion on investing on this board. Must be because of the meltdown over the election that I got into this one.

I can't hand out specific advise over the board and I am NOT soliciting clients on this board.

There are several on this board who can offer good advice and hopefully in addition to those who have made suggestions already some of the others will chime in. I just had a difference of opinion and chimed in. AS ER pointed out, I could be the guy the monkey beats.

I would suppose something I would do if I were you is ask, as you did. Ask those that do it on their own and maybe ask some friends or associates if they have a professional advisor they could recommend. Your accountant or lawyer actually might know someone they trust.

Check out their record and not just their last year record. See especially how they did during a tough time, say '08 or their record over the last 5 or 10 years.

You also have to determine what your objectives are. Sure you want to make money, but how about your time horizon. Retirement money, money to be available for a down payment in a year, etc. Also risk tolerance. What are you going to do if you take a drop of 10% or more, would you bail?

Anyway, in my humble opinion I am saying it takes effort to find a good fit for you. If you are diligent and thorough, no reason you can't do it on your own. If you don't have a strong interest in the area, then finding an advisor might be a good idea.

Lastly a starting place might be to google Fidelty Asset Allocation Models, then read the article listed as "The importance of asset allocation".

[eldiente]

It has been a couple of years since I got into a discussion on investing on this board. Must be because of the meltdown over the election that I got into this one.

I can't hand out specific advise over the board and I am NOT soliciting clients on this board.

There are several on this board who can offer good advice and hopefully in addition to those who have made suggestions already some of the others will chime in. I just had a difference of opinion and chimed in. AS ER pointed out, I could be the guy the monkey beats.

I would suppose something I would do if I were you is ask, as you did. Ask those that do it on their own and maybe ask some friends or associates if they have a professional advisor they could recommend. Your accountant or lawyer actually might know someone they trust.

Check out their record and not just their last year record. See especially how they did during a tough time, say '08 or their record over the last 5 or 10 years.

You also have to determine what your objectives are. Sure you want to make money, but how about your time horizon. Retirement money, money to be available for a down payment in a year, etc. Also risk tolerance. What are you going to do if you take a drop of 10% or more, would you bail?

Anyway, in my humble opinion I am saying it takes effort to find a good fit for you. If you are diligent and thorough, no reason you can't do it on your own. If you don't have a strong interest in the area, then finding an advisor might be a good idea.

Lastly a starting place might be to google Fidelty Asset Allocation Models, then read the article listed as "The importance of asset allocation".

Excellent advice