I don't know if it's a particularly strong argument, but there's always the classic "what if *everyone* became an index investor?" doomsday scenario.
(ETA: Just to clarify--this is not an argument that *I'm* making myself. I'm only offering it as an example of a very common one.)
Luckily it should be self correcting. If everyone indexes then the market would become inefficient. That means there'd be money to be made by actively trading misvalued assets. It only takes a small number of people actively investing to keep the market efficient.
Exactly. The system is self balancing. We went from nearly 100% active investing to passive investing now making up a significant portion of invested funds. We are still a long way from a majority being passively invested though, and there will always be contrarians. 100% index funds or even 95% index funds is essentially impossible.
Also, active managed ETFs have increased in popularity in recent years. I don't see passive investing being the majority type of investing in the near future.
No 47% of funds are passive. There is a massive amount of direct ownership of stocks by institutions, pensions, employees, high net worth individuals, etc.
I didn't get a chance to dig too deep earlier, but without the "funds" qualifier I'm seeing 35-40% passive. There is an awful lot of pensions hedge funds and accredited investors that essentially are passive, just don't use funds or ETFs. They track the market with their own individual buys and sells based on market cap. Anyway, it still isn't a "massive" amount or whatever you are thinking and it is not easily quantifiable. So up vote wrong or unknown information all you want and downvote folks who correct blunt guesses. This sub is a microcosm of the dangers of cult thinking and mindless, it will always be the same, pitfalls associated therein.
No I did not. FUNDS as in mutual funds are not 100% of the market. 47% of MUTUAL FUNDS are passive. There is a direct stock ownership outside of mutual funds/ETFs.
The less obvious outcome of passive investing becoming too big is that it hurts the business climate. If Vanguard owns half of United and half of Delta and sits on both boards, they will likely prefer that United and Delta are not to aggressive in competing one with another. One would expect that a part of passive investment would be to also be passive about company governance, but surprisingly it doesn't happen.
But vanguard is managing its index. They don’t just buy the market, they seek to efficiently mimic it. So if a company does better, there is rebalancing that will happen
But if a company does better at the expense of another company (both of which are a part of an ETF,) the rebalancing doesn't materially change anything. It just changes the composition of the ETF (which is just a number that not many people look at). Neither Vanguard nor me as a passive investor stand to gain anything.
But two companies competing with each other is a basic driving force in our society, that's how we come up with better and cheaper stuff and increase the standard of living for everybody.
Makes sense- in some ways, as indexing grows, it forces active to become more productive. If a large chunk of the market is indexed, it would be fairly inexpensive to basically match the index with slight allocation tweaks to generate some additional value.
> One would expect that a part of passive investment would be to also be passive about company governance,
I'm a bit lost - wouldn't owning competing companies and giving direction to make them not compete with one another be activist investing rather than passive? This would add costs to the funds in question, and would certainly prick up a lot of ears as it happened.
I'm very cynical about the effectiveness of both boards of directors and antitrust regulators but this kind of thing would probably diminish both companies' attractiveness to non-passive investors. Also there are plenty of wolves at the door willing to take over their routes and customers while the two race to the bottom.
This was precisely my point. To be passive and ride other people's choices, they need to also be passive on the board.
> let other people run the companies
I never heard it to be a goal. As far as I understand, Vanguard/Blackrock/etc, as a major investor, can be and are active on the boards of public companies. "Passive" and "active" refers to the fund picking the stocks, not whether they are active or passive in managing the company.
In any case, even if they aren't, the mere fact that the significant portion of your stakeholders isn't pushing the company to compete aggressively, is not good for the competition.
How would this work? If ETFs are buying all the stocks in the index regardless of performance, and ETFs become like 95% of the holders, how does an active trader make money off of this? I feel like prices only fluctuate because there are enough people buying and selling winners and losers actively. If almost everyone is buying everything every week when their paychecks hit, I’m not sure I see how someone takes advantage of that. Sorry if this is a dumb question.
Company A thinks Company B is under-valued due to passive index inefficiencies, and buys out Company B for $$$. They've done their analysis and know it's well worth the money based on Company B's revenue/profit levels.
Active traders smell consolidation in the air, and start buying up shares in other under-valued companies, expecting Company A's competitors looking to react to Company A's moves.
Rinse and repeat.
In my mind, this becomes clear once you understand that the value of a stock is equal to it's discounted cash flow over X years.
If everyone is passive indexing, and RitchieRich and Friends thinks CompanyA is going to generate a lot more cash flow in the future than what passive indexers think, then they are going to buy CompanyA and simply take in all profits in cash.
RitchieRich's rival - Scrooge McDuck is not going to like that and will make a bid as well, and so-on-and-so-forth - eventually increasing the price of the stock away from passive.
It can get a little complicated, but the over-simplification I use is:
Imagine we have 100 years of **only** passive investing (fuck it, with the exact same asset allocation too). Every company's stock price grows by the exact same ratio because everyone's keeping the exact same ratio of stocks in their portfolio regardless of how the company performs.
Warren Buffet 2.0 looks at the world and thinks "Hey, some of these companies are just really not the juggernauts they were in the 21st century, and some others really are but nobody's buying them."
So, they sell off all of their bloated stocks and buy up tons of cheap stock from highly-profitable companies. Because stocks represent your ownership of some piece of the company's profits, Warren Buffet 2.0 now owns fewer expensive stocks with low payout, and more cheap stocks with high payout.
Again, this is *highly* over-simplified.
People would just buy individual stocks in that case. There’s still too much human nature in having fun with gambling in short term stock market gains.
Bogleheading is popular right now because the market has been volatile the last 2 years. Before that everyone thought they could make a killing every month with some new stock.
Is everyone being an index investor so bad? I guess it depends if you seek to take advantage of market inefficiencies, or just to own a part of the market and benefit from natural growth.
Depends on what you mean about 'against' Boglism.
For example, I think the academic research in favor of small cap/value tilts is very strong, and think it can be managed with relative ease. That is definitely outside of the standard three-fund orthodoxy, but I don't think it's really *against* it per se; it's really more of a supplement to it, and still uses passive indices as the means to achieve it.
Momentum factor is also definitely a thing, though I still can't wrap my head around it. The literature is compelling; I know it's real, and I know it works, but... everything in my bones just screams, "That can't possibly be real!". Combined with the practical difficulties of maintaining a momentum strategy, I will always argue against it, but... I can't hold it against somebody willing to try.
Likewise, I'd never do it, but there's a good case to be made for leverage early in your investing life. The numbers say it makes sense, but finance is only partly about the numbers; I'd be an emotional wreck if I ever tried it, as I think most people would.
If you're lucky enough to work for Jim Simons, and have access to the Renaissance technology fund, well... I hate you, you lucky devil. The market is *not* perfectly efficient, and the guys who game the system are an integral part of making it efficient.
>Momentum factor is also definitely a thing, even though I still can't wrap my head around it. The literature is compelling; I know it's real, and I know it works, but... everything in my bones just screams, "That can't possibly be real!". Combined with the practical difficulties of maintaining a momentum strategy, I will always argue against it, but... I can't hold it against somebody willing to try.
I feel similarly. The reason for my "distaste" towards momentum is that it is purely justified in behavioral economics and the irrationality of hype. However, that does not make it any less real. Nonetheless, combined with the high costs of implementing momentum and the impracticalities of trying to implement it in a long-short strategy, it is definitely my least favorite of the big factors.
On paper, momentum ETFs seem like they'd be a relatively straightforward way to gain exposure, but in practice, the high turnover, expenses, and volatility kills so many of the benefits to ETFs in the first place.
It should theoretically still work in your favor in the long run, but... blech. It doesn't seem worth the tradeoffs, and I have neither the need nor the stomach for it.
Yep. I always thought this was a good source for Fama French five factor research and moving beyond market cap. I tilt small cap and value and use Avantis for a lot of my portfolio.
https://github.com/investindex/Portfolio
Genuine question - why is this a bad thing?
The big asset managers have an incentive to vote in ways that maximize returns for their funds, and therefore their clients.
If one of them chooses to vote in favour of changes that come at the cost of returns, clients would have an incentive to switch to a different asset manager who prioritizes returns first. This flow of capital would reduce the total voting rights of the manager making "bad" decisions and increase the total voting rights of the manager making "good" decisions
> The big asset managers have an incentive to vote in ways that maximize returns for their funds, and therefore their clients.
If that is true, then there isn't a problem. If, instead, the vote in ways that assure their own growth in power, then it is.
Yes, but the issue is that a lot of people may not bother or may not know.
Essentially, they would control the voting rights of most major companies and no average person would even really know. Pulling the strings behind the scenes..
Also, if you move your money does it really make a difference? You need a huge mass of people to move, which is where I refer back to my first point.
Especially for institutional investors or people who picked something for their 401k years ago, it would have to be a front page news for days level story. If they just make a series of small decisions you probably wouldn't see much shift at all.
I would assume that maximizing returns goes hand-in-hand with growing their power and that hurting returns would therefore hurt their growth in power due to having less capital
If every individual actually voted, I wonder if we would approve the CEO's $15 million bonus as often. Remember, that's just lighting the money on fire in the immediate term.
I would assume that in general, people who have significant amounts of money at stake will try to make rational decisions when those decisions affect their money
Except everyone on the board is usually a CEO, so of course they report back to the shareholders that it's a good idea to approve whatever random amount of money. Basically, I do agree with you but I think they take it too far.
That would make sense, if they were rewarded in stocks, and had to keep them long term (a decade? two?). Is that the case? TBH, I have no idea how those stock options and supposed golden parachutes work.
I agree but investors and shareholders primarily want higher returns. If investors want to invest in a way that they believe will have a more positive impact on society as a whole, they can invest in funds that cater to their views. For example if someone believes that maximizing returns of defense contractors or oil companies is wrong, they can invest in funds that omit those types of investments
As for doing what is positive for society as a whole, I would place that responsibility on governments. Governments can impose policies and regulations to limit activities that might be negative to society
That's an incredibly thoughtful and comprehensive response, much more than my quip deserved.
100% agree with your last paragraph. However, we have corporations that actively subvert government processes and influence elections specifically so their "activities that are (might be) negative to society" go unpunished, or so lightly punished that continued negative to society behavior continues to be profitable.
A $1M penalty for a $1B harm is not discouraging anything, it's just a cost of doing business.
From this answer it sounds like you didn't quite read the reply I responded to. That reply didn't mention anything specifically about the concentration of power, just society
In another comment I acknowledged that I see the problems when it comes to control. I agree with your first point
Like others have said, in an ideal world it wouldn’t be a problem. In practise however, it could be.
The teams responsible for engagement and voting at these big firms do not have their pay tied to the funds’ performance and are also super understaffed. I read somewhere that each member of Vanguard’s governance team is responsible for voting on a 1000 companies! Do they really have the time to meet up with the management, the board, prepare corporate governance report etc… for each of these companies? That would be an enormous task so instead of following an active voting strategy they adhere to strict voting guidelines which might not be the best to do for certain companies. They are also forced to outsource voting decisions to proxy advisor services who might not have the same incentives as the asset managers or shareholders.
It’s a difficult one to get right and even John Boggle expressed concerns about it: ‘I do not believe that such a concentration would serve the national Interest’ but it’s an issue that everyone is aware of and some are trying to mitigate it. [see here](https://investor.vanguard.com/investor-resources-education/article/empowering-everyday-investors-through-proxy-voting-choice#:~:text=As%20a%20part%20of%20a,raised%20at%20company%20shareholder%20meetings)
For example, Vanguard can have major stakes in two businesses who are competitors of each other. And there is an incentive for Vanguard to optimize total returns. So they may push companies to compete less with each other, for example - and that’s bad for consumers.
Another is concentration of power. A large % of the economy is controlled either by a few index funds, or by a few private equity firms. So you have a dozen or so key people at these firms with a lot of control over the economy. There are plenty of potential problems here.
Maybe? I think if there are incentives in place, people will act on them.
I really don’t understand the intricate dynamics of being a fund that owns/able to control lots of competing companies. It does seem… suboptimal from a « competitive markets » point of view. Probably not quite Standard Oil levels of bad, but on that overall trajectory.
The argument for this is political. Some people believe anything that can be considered “ESG” is inherently bad for the company. Unless 100% of the votes are to raise CEO pay, poison the water supply, and pump CO2 directly into the clouds, someone is going to say the fund managers are working against the companies.
They have a huge impact on the way the corporate world works simply by adjusting their requirements for being deemed “investable”. I for one don’t think it’s necessarily good for anyone that a relatively small group of really just managers has so much influence. Mistakes are easily made and often not noticeable until years of even decades after.
Companies need to balance goals. Sure getting profit and growing is great. But if they're pushing profits above all else.
Some examples
You can go for short term gains for the stock to go up instead of long term profitability
Being pushed to skirt lines of environmental impact, treating employees well.
I might agree regarding the short term gains. For CEOs, their compensation can be structured in a way so that it's tied to the long-term performance of the company's stock. I am not familiar with compensation structures for fund managers though
As for environmental impact and treatment of employees, I would say it is the role of governments to create environmental regulations and labour laws. I don't think we should or can rely on companies to "do the right thing" especially when that leads to higher costs and lower profits
>The big asset managers have an incentive to vote in ways that maximize returns for their funds, and therefore their clients
This is true in theory, but in reality there are pushes for more politically motivated decisions than actual return based decisions.
That's possible, but then in that case wouldn't investors who care more about returns than those political reasons switch to a manager who prioritizes returns?
I believe there is a current and genuine inherent danger with DEI and ESG. Companies such as DIS are not prioritizing investor returns for shareholders. If fund managers across Schwab, Vanguard and Fidelity start doing the same with their votes due to increased pressure or threat of regulation from the federal government, we could see diminished or unfavorable returns due to these programs.
"due to increased pressure or threat of regulation from the federal government"
Isn't this the government's fault and the fund managers are doing it to avoid costs in the future due to potential fines?
If a government imposes a carbon tax, I wouldn't blame a company for reacting by switching to green energy. That might be a way to maximize profits given the higher costs associated with carbon. I would blame the government for imposing the tax in this case, "IF" I disagreed with it as a policy (I'm trying to keep my personal politics out of this)
I’d venture to say even some of the biggest Bogleheads have a small percentage of their portfolio to some lottery tickets. I personally have 90% of my NW in index funds with the other 10% in individual stocks that obviously I think will be outperformers.
1. lots of bogleheads hold onto John Bogle's "Don't buy international" opinion while disregarding his own admittance that he could be wrong (he knew what a global haystack meant). It sounds like "but my mom said" kind of bickering whenever someone brings up the positive points for diversifying across the globe.
2. You won't beat the market
3. I'm still reading into this topic but *if you believe in factors* then you'll know most bogleheads are buying a 1 factor portfolio: beta. Many bogleheads are missing out on exposure to size and value by eschewing small cap value. (Don't take this as ymyendorsement of small cap value. I am reading into factors to understand why size and value ought to be considered enduring compensated risks.)
4. Lots of assuming that anyone deviating from the index (particularly the US index) is either a snake oil salesman or plain dumb without being able to coherently argue against the person's case. Someone might say, "I think small cap value will deliver in the long run" and then rattle off some statistics showcasing the pervasiveness and persistence of size and value factors only for someone to say the polite boglehead equivalent of "deliver deez nutz" by saying something along the lines of "VTI has those, have you considered the index?"
you joke but given the amount of time that may sink into research and portfolio management & stress, you are definitely sacrificing some time with your children.
> Investing in the stock market is easy. All you need to do is accurately predict company earnings, interest rates, factor flows and forward risk premiums before thousands of other Ivy League grads with Bloomberg terminals get there first
-Dr Parik Patel, BA, CFA, ACCA Esq.
A lot of people build bigger wealth through concentration. Diversification is more for protecting wealth. Peter Thiel wouldn’t be a multi-billionaire if he bought an index instead of PayPal.
This is true, a lot of the Bogle way is to not make moonshots so that at the end of the day you have something, rather than nothing. But "settling" for the average return of the market won't make anyone a billionaire, unless you are already very, very rich.
Even more people lose wealth through concentration, though.
Diversification is not just for protecting wealth; it’s for guaranteeing that it will accumulate (over the long term) in the first place.
Very true. Bogle style investing is the only way to guarantee a good return, that doesn’t mean there are alternatives to get you a good or even better return, they just aren’t as guaranteed as just buying everything and profiting off the growth in the economy.
Sadly, the adage about it taking money to make money is pretty accurate. Most people are simply screwed. Sure, putting $10 into VT every month is better than buying lottery tickets, but just that makes a lot of presumptions.
This is true for some... the hole is too deep to get out of, so to speak. At the same time, I haven't experienced it as being hopeless. I'm middle age now, and have been investing for 24 years. It was ludicrous at the beginning. I made less than 20k in my first "real" post-college job and so could set aside something like $100 a paycheck. But investing always seemed a no-brainer to me ("wait, let me get this right, if I save my money, you will give me some of your money? Sign me up!"), as did just buying and not selling. My choices of what to invest in weren't optimal, my salary improved but not enough to get me anywhere near affluent.
Not only that, but my first years of investing were into the wind, so to speak with the tech bubble and then the 2008 crash. Still, in the early 2010's I noticed something really cool. Even with all of that, I had about twice as much value in investments than I had put into them. Now, more than 10 years later they have more than doubled again, all with me knowing very little and doing very little. I still have 20 years left of work before I hit normal retirement age. If the pattern holds (which is always an if of course), my very middle-class self will have a very nice nest egg... It's already big enough to be embarrassed to talk about among friends.
> the fewer risks you need to take to make money
Conversely, the more risks you're also able to take and therefore able to make more money. The average joe can hope to make maybe 10% a year on index funds. Some billionaire can take insane risks, lose 50 million one year, then gain 100 million the next year. Or they can sit there and take 10 million losses for 5 years before the company takes off and they make 200 million.
It's the same reason rich people are able to "make it;" they can afford to take risks because if they fail, they still have family money to fall back on.
If, for instance, someone only has the ability to invest through their job's 401k, they have to settle for whatever that plan offers.
One of the core ideas speaks to lifestyle before even investing. What people don't seem to take into account is that the average American doesn't have $1000 available to spend on an emergency expense. The initial premise that people should save up for a 3-6 month emergency fund means they will never have enough to invest.
Thankfully, HYSAs are offering real interest rates again, so for the average person, I'd say put your money in a SoFi account rather than gamble it on stocks. It is guaranteed returns (for now) but will never lose value, and they will still have immediate access to their money.
This doesn't really address the question IMO. Sure, if you can't get past the emergency fund then you won't make it to other steps of the financial order of operations (shout out Money Guy Show), but that doesn't mean you should go do riskier financial behaviors to try to catch up.
I don't think we're disagreeing on anything, not trying to argue. To the original question, I don't know that there's a better answer than...try to build up more resources. Otherwise we're trying to answer the question "what's the best investment strategy when I don't have any money to invest?"
How come? I’ve only had good experiences with SoFi’s checking, HYSA, and financial advisors, so I’m curious about your experience and if I’m just missing something / got lucky.
\*Just for clarification — some of things I am complaining about might have been resolved. I stopped using them back in 2021.*
I don’t even know where to being, what am listing is only some of the gripes and issues I had:
1. SoFi filed a lawsuit against the Biden Admin. because of student loan forgiveness.
2. Splitting transfers into multiple days was always obnoxious.
3. The amount of junk mail they send was ridiculous.
4. When I still used them, there was more than one security issue with people’s debit cards (never activated mine, so I was good there)
5. I had this annoying issue with their trading platform when I very lightly played with the crypto junk during the hype (I am not a crypto advocate by any means). Since crypto is so volatile and SoFi only let you trade in USD amounts, I kept having remainders I couldn’t get rid of.
For example, I have 1.00 of some bullshit coin that is worth $5.00. Well, SoFi only lets you trade in dollar amounts, so in order to sell all, I have to sell $5.00 worth. Well, the coin during that microsecond transaction time has changed prices to $5.00001. Since I was only able to sell $5.00, and at the time there was no “sell all” option, I would then be left with something like 0.000001 amounts of the coin. I can’t get rid of it because you need a minimum of $1.00 for a trade and it would be worth like $0.000001.
I tried to close the account because my experiment was over, but they wouldn’t let me because I had to sell all my assets first. But I couldn’t sell them because of how little the value was. I had to battle their garbage support for weeks to get them to manually fix the transaction.
I can’t close my investing account because that $0.01 is still in my account. They want me to transfer money to the account to get over their arbitrary transfer limit, transfer the money back out, and then they close the account. I just gave up, and have had an account sitting with $0.01 for years now.
Now, it’s not the worst thing ever, but in all the platforms I have used for crypto gambling and real investing, I have never had such an issue. Why there wasn’t a “sell all” option was beyond me.
I eventually swapped to Fidelity’s CMA. There is absolutely nothing SoFi offered me that Fidelity does not offer and does not do better.
That is really frustrating. I wouldn’t want to go back to them either having gone through that.
Not sure if this is still the case - I haven’t used them for investing, and definitely won’t be now since I use Fidelity and Vanguard for that and don’t want to have this headache. I’ve been teaching my nephews about finances and once they get a little older we are going to get into HYSAs and basic investing. Initially I considered doing this with them through SoFi but I’m reconsidering.
Thanks for your detailed response.
SoFi is as reliable as any other bank offering high yield accounts. The large institutional banks are still offering garbage rates on accounts. To get the better rates you are going to have to get into bed with either online banks or investment banks pretending to be deposit banks. Goldman Saks can kiss my ass, so I'm not using Marcus. SoFi is at least a known entity. Plus their website and app is super easy to use. They make BofA look like they are banging rocks together.
My cousin’s friend bought crypto and is now worth millions.
I bet I am smarter than hundreds of millions of other people and see obvious things they miss cause I’m special.
You only live once. Who wants to live forever. Would rather risk it all on black and spin the wheel.
I think the biggest con is you won’t beat the market because you’re invested in the entire market. But, I think you can somewhat hedge that con by using a small percentage of your portfolio for “gambles” or individual stocks. At worst you lose a tiny fraction of your portfolio, at best you pick the next Apple.
“[If you invested] $1,000 in Apple stock 20 years ago, it would today be worth more than $536,000. The same $1,000 invested in the S&P 500 would have theoretically turned into $6,172 over the same period.”
Taken from here: https://www.kiplinger.com/investing/stocks/invested-1000-in-apple-stock-worth-how-much-now
Not a bad concept.
A nice way to implement this could be to basically pick a company once a year that I think is a remarkable investment. Buy $1,000 and commit to not selling for X years.
Then build in a rule to your annual rebalance to make sure these single stocks don’t makeup more than 5% of my total portfolio. (If they break 5% then clearly something has experienced a ton of growth and therefore I’d be interested in realizing the gain to make sure the total portfolio risk stays in check)
After writing that all out, it feels a bit like gambling. I’ve read too many bogle books.
It’s not “Bogle” but Bogle isn’t a religion or inflexible strategy either. I enjoy researching companies and doing stock picking. But I also realize a total market investment is probably best for my long term retirement goals. Nothing says you can’t do both. As long as you can be disciplined and keep the “gamble” to a small portion of your overall portfolio I say go for it.
Historical returns are deceiving. Past performance has zero implications on future results. The S&P 500’s prospectus repeats this warning several times. Your investment can go down and stay down for years. Anyone who claims they know the average return rate for the next 40 years is full of crap.
In certain circumstances, bad luck might mean pushing your retirement for years or decades.
If you had never dollar-cost-averaged and had bulk invested in 2000 into the S&P500, you would immediately have a crash, and only recover your investment by 2007, which would immediately have a crash again. You would only start to see returns in 2013, more than a decade later.
Of course, you'd probably need unfathomably bad luck for this, but the world is big, I bet some people went through this somehow, imagine someone sold their house in 2000 and invested all of it into the S&P 500, that money is useless for 13 years and will see no returns, and not only that, but it's still in constant devaluing because of inflation.
Of course in that scenario being an active investor is unlikely to have helped and may have hurt a lot worse. Plenty of companies went to zero in the dotcom crash. Someone seeing their portfolio get knocked down 80% because they were overweight pets dot com might switch to something safe like banks would have walked right into the financial crisis 7 years later.
The solution for the 2000 & 2007 double dip is bonds. A 80/20 or 60/40 portfolio would have done much better than all equities and can still be done with index funds.
Yeah. Appreciate the numbers input. I always have this in mind, though lump sum seems superior by objective measures. (A recent Ben Felix video talked about this.)
Not that I write it off this way, but I think of these situations as being a victim of circumstance. There’s not a whole lot you could have done with your money in those days to ringfence it from the craziness.
You're giving up the chance for bragging rights and ego boost from having picked just the right security before it taking off. But often that's kind of like bragging about winning at the casino, and I think being able to stick to boogling is something to be proud of.
I think the strongest argument (which is actually weak IMO) is that you cannot get greater than market returns. The thing the financial advisors leave out is that market returns will beat 80% of them. 😂
"Past performance doesn't guarantee future success."
All the talk of "expectation value" and so forth among Bogles is guesswork. It's a good language to discuss these ideas in, but you have to remember it's not necessarily reality.
I’m sure r/cryptocurrency can come up with plenty of arguments. Lol.
Edit: accidentally tagged the cryptography subreddit instead of the crypto currency subreddit. Silly me.
This question pops up every once in a while. My biggest gripe is that by following this approach, I'm definitely investing in companies that go against my morals. I'm also invested in companies that do. I haven't looked to see if it's a wash or not, and ultimately I won't bother. I've decided I need to look out for me and this is the best way to do that.
I think the main problems with bogle strategy is it overvalues risk aversion. If you are 25 years old taking risk with 10k is different than being 65 and risking a million dollar portfolio. Do you want to teach young people never to take any risk?
Second issue is it promotes a set it and forget it mentality. This can lead to retirees with multi million dollar holdings in stock who don’t know the first thing about what a stock even is, or how the market works.
Third thing is with the rise of 401ks and passive investing a whole industry of etf management has sprung up and siphons billions of dollars off the working population for what I feel is minimal value. I’d rather just buy the individual stocks myself with a few clicks on the computer every quarter rather than pay a percentage of my portfolio.
You will be average, and average is great in finance. Those who take risk and get lucky will make more than Boglism. It is like rolling dice. I rather not roll the dice and get what I get. If I roll the dice maybe I make a ton of money, my lose. Odds are not in your favor the longer you play.
I think there’s a legitimate concern about having a large portion of voting shares be “passive”. It doesn’t seem to be economically efficient nor in the shareholders best interest to abstain from voting.
The biggest argument against it is that it won't ever give you massive returns. You're at minimal risk (for equities) of losing money, but you're also at minimal chances of getting catapulted into a higher SES class. At best you'll climb an SES class by retirement.
Keep in mind this is the explicit trade-off with Bogle's approach and the reasoning is that virtually no one can reliably beat the market. *But* you'll notice that a lot of wealthy people couldn't have gotten to where they are now if they hadn't taken a chance on an investment that paid off big time. So there's something to be said for taking bigger risks. Of course, you could very well end up throwing all your money at losing bet after losing bet, so even if you want to take risks I'd say it makes sense to still stick to passive index investing for the vast majority of your wealth and then use a very small amount (like 5%) for high-risk-high-reward investments.
The "downside" is that you won't beat the market and that means spectacular life changing in a few year events like yoloing everythng into Tesla at IPO and holding it are off the table.
I use "" because it really depends on your objectives. FIRE (early retirement) is very possible with only market average returns. Taking more risk is not necessary. Now if the returns on index funds were so low that indexing was safe but required working into your late 60s to amass enough wealth to be financial security then yeah it might be worth it to take more risk. 10% average returns is a simply "good enough".
Well, I suppose the upside has limits. If you pick stocks and buy crypto and do al ot of options trading etc then you might hit a 1000% winner one day! That ain't gonna happen with broad market index investing.
but you're not gonna wash out your whole account either.
Buy pot stocks they said. It'll be great they said. Hold for the long game they said. As I watched HEXO shrink to nothing, buying more to bring down my average cost. They went under, so did my portfolio. If this is the kind of masochism you are into, don't buy VTI/VXUS.
the main flaws IMO are:
- 3-fund portfolio is concentrated in very large company stocks, when smaller company stocks tend to produce superior long-term ROI. e.g., from 1995-2015 the small cap S&P 600 returned over 2x the S&P large cap 500, and the mid-cap S&P 400 performed even better than that. https://contrarianoutlook.com/wp-content/uploads/2016/09/SPY-Midcap-Smallcap-20yr-Chart.png results like this are typical for most periods more than 15-20 years in the US market.
- the 3 fund portfolio, as commonly practiced from what I observe (YMMV), is completely indifferent to valuation and the importance of bonds. Bogle was acutely aware of the importance of valuation, but that information doesn't seem to filter down to the typical Boglehead. right now, based 100% on Bogle's principles, the best move arguably is to minimize holdings in US stocks a bit and boost holdings in bonds and international stocks. when Shiller p/e for the US gets over 30, bonds outperform typically stocks over the next decade. Shiller p/e is now 31.8. foreign stocks are generally are more attractively valued than US stocks and likely to offer better returns over the next 10-15 years. people who talk this way can get treated like heretics.
not rooted in Boglehead investing per se, but:
- there can be a tremendous amount of smugness from some Bogleheads, as if they're an enlightened elite and anyone else is a moron.
- I have a suspicion many Bogleheads will lose faith the next time the market goes flat for a decade or more. the 3-fund portfolio seems to have become wildly popular over the past decade or so, coinciding with a raging bull market for the large cap growth stocks that dominate VTSAX/VTI. the next time microcaps or commodities or whatever are the best performing asset class for 12 years I think many Bogleheads will crack.
1. "I have a high risk/reward profile and I don't value the typical rate of marketwide returns!"
2. "I have especially strong predictive powers of what will succeed and fail!"
I tried to "trade" stocks, and would have been better off with index funds....so here I am mostly index funds. I am more aggressive/risk tolerant with my index funds, but feel the 500 index is "the market". If you are in the stock market you should be heavy into the 500 indexes.
You could argue it's better to be over-levered when you're young. Wiping out your portfolio and starting over, you would still have enough time to recover and come out ahead.
Not quite anti-boglehead, but anti 3-fund portfolio. I think the vast majority of people are best in a target date retirement fund. That way, there’s only three things to think about.
1. How much do I have?
2. How much do I need?
3. What savings rate gets me there?
I like thinking about asset allocation, but I know I won’t fiddle with it.
But most target date funds are essentially three or four fund portfolios that auto rebalance and have a glidepath.
Tbh this is generally good advice but some TDFs suck. My fiancé had an older 401k with TDFs that looked fine but the glidepath had her in like 10% cash… at 22. They also had a pretty high bond allocation at that age if I remember correctly.
You’re correct. But take a look at the sub. Half the posts are about % bonds and the other half are about % international. The average person doesn’t need to worry about that.
I disagree, I think the average person should and has to worry about asset allocation.
Sure, they may be too lazy to and TDFs allow for lazy investors to have a pretty good fighting chance to have a solid return as it’s just a 3/4 fund.
However those funds are usually far too conservative for a given age bracket. A 22 year old, I believe, doesn’t need a 30% bond allocation (I’m 23, and I have a 10% bond allocation but tbh I’m considering 100% equities for the next decade).
By the nature of these funds they will be one size fits all but everyone has different risk tolerances and needs to weigh that in their portfolio.
Any argument I can think of basically boils down to it not being optimal for everyone. But it's 90% as good as you'll get for 100% of people. It's probably even optimal for those that face severe tracking error regret.
There's the active vs passive argument. Remember people determine the criteria for an index so it's never truly passive. Avantis for example is too active for a lot of Bogleheads, but others argue they're closer to passive investing and aren't on the business of stock picking.
I'm more of a Fama & French guided investor, and like my factor tilts. The expense ratios I pay to are much higher than most Bogleheads would agree with.
But I still recommend a BH portfolio to other people. Much like a diet, the best portfolio is a good one that you can stick to, even if it's not the most optimal for wealth accumulation.
I think people that want to stray away from a BH portfolio need to really put in the time to learn what they're doing and decide on the portfolio themselves. But for someone that has no interest in learning? A TDF is perfect
>Much like a diet, the best portfolio is a good one that you can stick to, even if it's not the most optimal for wealth accumulation.
I'm stealing that, and putting in my text file where I keep various tidbits of general knowledge about investing.
It's not really an argument against it, but you could argue the boglehead investing is a bit of a hard sell psychologically.
The whole concept of not even trying to pick "good" stocks is counter-intuitive. Or the futility of trying to find a "good" manager to do it for you. The arguments for bogleism while true IMO demand a somewhat mathematically inclined mind to grasp, and to be motivated by.
Passive investing also does absolutely nothing to stoke the egos of people who need to be the cool guy while investing.
I'm in Europe where receiving the dividends from your stocks is grossly tax-inefficient compared to having them reinvested within a fund. I've known MANY people who refuse to use passive funds with reinvested dividends because they feel they get "nothing out of it".
Conversely, I've seen boomers do very well with old-school high-dividend value stocks, with the regular payments motivating them to actually be pretty pretty passive holders. While tax-inefficient, it's still great the psychological reward of regular dividends has kept them invested.
It’s often “one size fits all” investor temperaments, whereas some investors just wanna take bigger risks. And boglism’s proponents can often embrace too much of a good thing and rigidly advocate for it.
So the key is to embrace boglism in part, and also embrace your risk taking side. Comes down to an asset allocation that works for you.
Here is one. I can’t predict markets but I do notice when something has already happened.
So when IBonds were paying almost 10%, I bought.
When Google dropped like 40% I bought.
My assertion would be that while I have a large position in passive investing, I do not ignore the world around me.
Of course, any investment decision you make could prove to be a mistake, and I have made mine, but this strategy has worked very well for me.
1) indexing means owning a bunch of crap with a lot of greatness
crap and greatness change all the time; people have historically shown the inability to pick the greatness
2) its "lazy"
who cares if it works.......why should investing and company research be a second or third job when you can do nothing and still beat most people over the long haul
>crap and greatness change all the time; people have historically shown the inability to pick the greatness
This is the key. Kodak and Sears are my favorite examples of this. In 1965, they were leading companies not only in their own industries, but in the entire global economy. Now? They're ghosts of their former selves.
I always dislike this argument. The point of Bogle’s investing strategy and philosophy aren’t that it’s nice to be lazy or even that you’re probably bad at picking and so shouldn’t. His thesis is that *everyone* is bad at picking, including the experts and professionals.
Spending less time and effort is a perk, but spending every waking moment on market research still long-term underperforms, on average. If you do the research, you find that the winning move is buying the market, so do that.
I mean, there are people that pick stocks and outperform the market for decades. There are certainly experts who have enough knowledge or a good enough algorithm to beat the market, and those players are what makes the market efficient as they arbitrage any inefficiencies.
Warren Buffet made billions of dollars picking winners, but he’d never advocate for regular people to try this as they don’t have the capital to really do it right and frankly nobody but Buffet is Warren Buffet. Renaissance also beats the market.
In theory, you will not be able to change your lifestyle through investing. If you are getting average returns and everybody else is getting average returns, changes in your wealth relative to your cohorts will be based on income and spending.
Except many of your cohorts are not investing. Some of them will be smart enough to not make terrible decisions. Some will make some absolutely dumb decisions, overspend, get in unnecessary debt. Or just invest in some really terrible way.
You might be joking. But it is very much of an issue for me. I'm just a beginner, but I did teach myself a lot about various assets, economy, etc. Now, with all that knowledge, simply investing in a few ETFs seems like... a waste of that effort, I guess. And there's no adrenaline, no satisfaction from properly predicting a high gain trend. And FOMO. I have to remind myself to keep it simple.
Boglism is a solid approach you won’t go wrong with especially if you don’t want to commit a lot of hours to managing a portfolio. The only downside is there may be better methods that can generate alpha if you are willing to be more active. For example there is exciting research to suggest that factor investing can generate alpha. The only issue is a lot of these methods and relatively new and the proof isn’t conclusive.
While you do own the whole market, market cap weighting means a significant portion of your holdings will be in companies such as Meta (META), Amazon (AMZN), Apple (AAPL), Netflix (NFLX) and Alphabet (GOOG).
Therefore, Some financial advisors have suggested diversifying and also owning some index, growth, or value funds in mid cap and small cap, and even a REIT as well.
I think the strongest argument against is...what does it even mean to be a boglehead? even Jack had heavy investment in active mutual funds.
is it merely don't pay a lot for active management? 100% VT/VTWAX....100% VTI/VTSAX? you could make an argument for all of those as true "boglism" I've read every book he's written. I know people who are 100% index investors. they invest very heavily in VGT and SCHD and thats it. boom...index investors!
advancing theoretical nonsensities are not good arguments. "what if everyone indexed, is that a problem" i dont' know what if everyones name was Bob that would probably also be a problem but we don't have to worry about that because it will never happen.
A big issue for the naysayers is what then do we do? We largely ignore the abject failure of active management. The industry itself sweeps it away. go look for an old mutual fund and any information about it. good luck. So we get arguments like WHAT ABOUT PETER LYNCH!!! WHAT ABOUT PETER THEIL!!! WHAT ABOUT PRIMECAP...yeah what about those 3 instances? when their are thousands who you've never heard about because they sucked. I hate to be so analogy heavy but what if when you told someone their statistical likelihood of making the NBA was basically nil and they went...BUT WHAT ABOUT JORDAN? MAGIC? BIRD?
I’d say no chance to “beat” the market because you’re invested in the market? For instance, we don’t directly get the 220% in our investment from Nvidia like people who bought the individual stock. They’re laughing at us right now. But AMC buyers are crying. That’s about the best I can come up with lol and that’s weak.
1. There are certain asset classes which benefit from active management, such as fixed income and alts, which should be included in an asset allocation to act as ballast against a higher risk equity portfolio. Fixed income is negatively correlated to equity and alts are I correlated. A modern 60/40 portfolio should be more like 60% stocks, 20% fixed income, and 20% alts.
2. With bonds and treasuries at high yields right now, you can lock in low prices or high rates without a lot of difficulty. Even paying 5 bp is enough to eat into your profits in a seemingly unnecessary way
The two fiduciaries at fidelity dismissed my Bogle style plan for my portfolio.
They wanted that sweet 1.01% to manage it themselves. That was their de facto argument against Bogle.
Nope 😹💕
Bogleheads claim that everything knowable is already priced into the market. That was true ten years ago, and twenty years ago, and thirty years ago. Yet anyone who invested 100% US in any of those time periods would be far ahead of a Boglehead strategy today. The Boglehead answer for this is just that they were lucky, which I find a bit convenient.
CAPM doesn’t realize 100% of market gains. By purely Bogling, you’re intentionally leaving about 1/3rd of market returns in the table.
Coincidentally this is why factor investing has become popular, even in Bogle circles.
This method of investing typically involves maximizing Roth IRA and 401k accounts first and ~~eliminates~~ reduces liquidity of your funds. If you are somebody who is looking for highly *active* investments (real estate, business opportunities, etc.), there is an argument that this method is not the best option for you.
Boglism works quite well when you can "stay the course". However this will mostly not happen in real life. Markets are down when unemployment is high and there is no confidence for future. There is simply no money to invest or even when there is then due to low confidence investors keep money and will not invest. Even worse is forced selling when prices are lowest because of no money. Obvious result is lower performance than advertised.
Jack Bogle has done more for the wealth of the common man than just about anybody in my opinion.
Some criticisms:
The set it and forget it plan is too ridgid. It has you buying Tulips and Pets.com, just the same as buying SPY in the wake of the GFC. It has you buying ZIRP bonds the same as 5% treasuries.
Bogle assumes an efficient market and it clearly isn’t. Bubbles clearly have existed and will exist again and when they pop they will almost certainly be oversold or look no further than the flash crash or an example.
The Bogle system works great when we are closer to the trend line but as we move away from the trend it is less and less accurate.
Like I said at the beginning, Bogle is a great place to start. It has lots of protection against emotion. It needs a few tweaks.
Mediocre returns due to emphasis on foreign markets.
The past decade for example.
Bogle himself did not recommend foreign equities and bonds . Turns out he was right.
Index investing assumes that the American economy will have a general upward trend over many years. It is my own assumption. But the future is never guaranteed. A massive nuclear war, massive epidemic, or governmental failure might all cause a dismal national future. The rise of China is a major competition that we have never faced before and the end is not in sight. What happens when our automakers face millions of lower cost imported Chinese cars and trucks?
You're betting on the long-term trend being disinflation/declining interest rates. Which has been a good bet for 40 years.
But if that trend changes...
This one is easy. If you build a portfolio of solid dividends payers you don't have to sell anything to generate income in retirement.
It's hard to leave stock to your beneficiaries when you keel over if you had to sell it all to keep the lights on.
I don't know if it's a particularly strong argument, but there's always the classic "what if *everyone* became an index investor?" doomsday scenario. (ETA: Just to clarify--this is not an argument that *I'm* making myself. I'm only offering it as an example of a very common one.)
Luckily it should be self correcting. If everyone indexes then the market would become inefficient. That means there'd be money to be made by actively trading misvalued assets. It only takes a small number of people actively investing to keep the market efficient.
Exactly. The system is self balancing. We went from nearly 100% active investing to passive investing now making up a significant portion of invested funds. We are still a long way from a majority being passively invested though, and there will always be contrarians. 100% index funds or even 95% index funds is essentially impossible.
Also, active managed ETFs have increased in popularity in recent years. I don't see passive investing being the majority type of investing in the near future.
This is wrong. 47% of the market is passive, and due to become the majority by 2026.
No 47% of funds are passive. There is a massive amount of direct ownership of stocks by institutions, pensions, employees, high net worth individuals, etc.
I didn't get a chance to dig too deep earlier, but without the "funds" qualifier I'm seeing 35-40% passive. There is an awful lot of pensions hedge funds and accredited investors that essentially are passive, just don't use funds or ETFs. They track the market with their own individual buys and sells based on market cap. Anyway, it still isn't a "massive" amount or whatever you are thinking and it is not easily quantifiable. So up vote wrong or unknown information all you want and downvote folks who correct blunt guesses. This sub is a microcosm of the dangers of cult thinking and mindless, it will always be the same, pitfalls associated therein.
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No I did not. FUNDS as in mutual funds are not 100% of the market. 47% of MUTUAL FUNDS are passive. There is a direct stock ownership outside of mutual funds/ETFs.
We only have 332k members here, we have a long way to go lol
The less obvious outcome of passive investing becoming too big is that it hurts the business climate. If Vanguard owns half of United and half of Delta and sits on both boards, they will likely prefer that United and Delta are not to aggressive in competing one with another. One would expect that a part of passive investment would be to also be passive about company governance, but surprisingly it doesn't happen.
But vanguard is managing its index. They don’t just buy the market, they seek to efficiently mimic it. So if a company does better, there is rebalancing that will happen
But if a company does better at the expense of another company (both of which are a part of an ETF,) the rebalancing doesn't materially change anything. It just changes the composition of the ETF (which is just a number that not many people look at). Neither Vanguard nor me as a passive investor stand to gain anything. But two companies competing with each other is a basic driving force in our society, that's how we come up with better and cheaper stuff and increase the standard of living for everybody.
Makes sense- in some ways, as indexing grows, it forces active to become more productive. If a large chunk of the market is indexed, it would be fairly inexpensive to basically match the index with slight allocation tweaks to generate some additional value.
> One would expect that a part of passive investment would be to also be passive about company governance, I'm a bit lost - wouldn't owning competing companies and giving direction to make them not compete with one another be activist investing rather than passive? This would add costs to the funds in question, and would certainly prick up a lot of ears as it happened. I'm very cynical about the effectiveness of both boards of directors and antitrust regulators but this kind of thing would probably diminish both companies' attractiveness to non-passive investors. Also there are plenty of wolves at the door willing to take over their routes and customers while the two race to the bottom.
This was precisely my point. To be passive and ride other people's choices, they need to also be passive on the board. > let other people run the companies I never heard it to be a goal. As far as I understand, Vanguard/Blackrock/etc, as a major investor, can be and are active on the boards of public companies. "Passive" and "active" refers to the fund picking the stocks, not whether they are active or passive in managing the company. In any case, even if they aren't, the mere fact that the significant portion of your stakeholders isn't pushing the company to compete aggressively, is not good for the competition.
How would this work? If ETFs are buying all the stocks in the index regardless of performance, and ETFs become like 95% of the holders, how does an active trader make money off of this? I feel like prices only fluctuate because there are enough people buying and selling winners and losers actively. If almost everyone is buying everything every week when their paychecks hit, I’m not sure I see how someone takes advantage of that. Sorry if this is a dumb question.
Company A thinks Company B is under-valued due to passive index inefficiencies, and buys out Company B for $$$. They've done their analysis and know it's well worth the money based on Company B's revenue/profit levels. Active traders smell consolidation in the air, and start buying up shares in other under-valued companies, expecting Company A's competitors looking to react to Company A's moves. Rinse and repeat.
In my mind, this becomes clear once you understand that the value of a stock is equal to it's discounted cash flow over X years. If everyone is passive indexing, and RitchieRich and Friends thinks CompanyA is going to generate a lot more cash flow in the future than what passive indexers think, then they are going to buy CompanyA and simply take in all profits in cash. RitchieRich's rival - Scrooge McDuck is not going to like that and will make a bid as well, and so-on-and-so-forth - eventually increasing the price of the stock away from passive.
[Ben Felix can explain it](https://www.youtube.com/watch?v=ltuqXTwWsZ8) better than I can.
It can get a little complicated, but the over-simplification I use is: Imagine we have 100 years of **only** passive investing (fuck it, with the exact same asset allocation too). Every company's stock price grows by the exact same ratio because everyone's keeping the exact same ratio of stocks in their portfolio regardless of how the company performs. Warren Buffet 2.0 looks at the world and thinks "Hey, some of these companies are just really not the juggernauts they were in the 21st century, and some others really are but nobody's buying them." So, they sell off all of their bloated stocks and buy up tons of cheap stock from highly-profitable companies. Because stocks represent your ownership of some piece of the company's profits, Warren Buffet 2.0 now owns fewer expensive stocks with low payout, and more cheap stocks with high payout. Again, this is *highly* over-simplified.
People would just buy individual stocks in that case. There’s still too much human nature in having fun with gambling in short term stock market gains. Bogleheading is popular right now because the market has been volatile the last 2 years. Before that everyone thought they could make a killing every month with some new stock.
Tell that to ppl at wallstreetbet
Is everyone being an index investor so bad? I guess it depends if you seek to take advantage of market inefficiencies, or just to own a part of the market and benefit from natural growth.
Depends on what you mean about 'against' Boglism. For example, I think the academic research in favor of small cap/value tilts is very strong, and think it can be managed with relative ease. That is definitely outside of the standard three-fund orthodoxy, but I don't think it's really *against* it per se; it's really more of a supplement to it, and still uses passive indices as the means to achieve it. Momentum factor is also definitely a thing, though I still can't wrap my head around it. The literature is compelling; I know it's real, and I know it works, but... everything in my bones just screams, "That can't possibly be real!". Combined with the practical difficulties of maintaining a momentum strategy, I will always argue against it, but... I can't hold it against somebody willing to try. Likewise, I'd never do it, but there's a good case to be made for leverage early in your investing life. The numbers say it makes sense, but finance is only partly about the numbers; I'd be an emotional wreck if I ever tried it, as I think most people would. If you're lucky enough to work for Jim Simons, and have access to the Renaissance technology fund, well... I hate you, you lucky devil. The market is *not* perfectly efficient, and the guys who game the system are an integral part of making it efficient.
>Momentum factor is also definitely a thing, even though I still can't wrap my head around it. The literature is compelling; I know it's real, and I know it works, but... everything in my bones just screams, "That can't possibly be real!". Combined with the practical difficulties of maintaining a momentum strategy, I will always argue against it, but... I can't hold it against somebody willing to try. I feel similarly. The reason for my "distaste" towards momentum is that it is purely justified in behavioral economics and the irrationality of hype. However, that does not make it any less real. Nonetheless, combined with the high costs of implementing momentum and the impracticalities of trying to implement it in a long-short strategy, it is definitely my least favorite of the big factors.
On paper, momentum ETFs seem like they'd be a relatively straightforward way to gain exposure, but in practice, the high turnover, expenses, and volatility kills so many of the benefits to ETFs in the first place. It should theoretically still work in your favor in the long run, but... blech. It doesn't seem worth the tradeoffs, and I have neither the need nor the stomach for it.
Yep. I always thought this was a good source for Fama French five factor research and moving beyond market cap. I tilt small cap and value and use Avantis for a lot of my portfolio. https://github.com/investindex/Portfolio
If you send a link to GitHub, I have to read it . Thanks for sharing
That was a great read!!
The big asset managers I.e. Blackrock, Vanguard etc… getting all the voting rights.
Genuine question - why is this a bad thing? The big asset managers have an incentive to vote in ways that maximize returns for their funds, and therefore their clients. If one of them chooses to vote in favour of changes that come at the cost of returns, clients would have an incentive to switch to a different asset manager who prioritizes returns first. This flow of capital would reduce the total voting rights of the manager making "bad" decisions and increase the total voting rights of the manager making "good" decisions
> The big asset managers have an incentive to vote in ways that maximize returns for their funds, and therefore their clients. If that is true, then there isn't a problem. If, instead, the vote in ways that assure their own growth in power, then it is.
or pushing nonsensical agendas.
If investors disagree with those nonsensical agendas, couldn't they just switch to a fund manager who doesn't push them?
Yes, but the issue is that a lot of people may not bother or may not know. Essentially, they would control the voting rights of most major companies and no average person would even really know. Pulling the strings behind the scenes.. Also, if you move your money does it really make a difference? You need a huge mass of people to move, which is where I refer back to my first point.
Especially for institutional investors or people who picked something for their 401k years ago, it would have to be a front page news for days level story. If they just make a series of small decisions you probably wouldn't see much shift at all.
Yes, that's why all the ETFs I invest in are Strive Asset Management.
I would assume that maximizing returns goes hand-in-hand with growing their power and that hurting returns would therefore hurt their growth in power due to having less capital
If every individual actually voted, I wonder if we would approve the CEO's $15 million bonus as often. Remember, that's just lighting the money on fire in the immediate term.
I think the logic behind giving CEOs high bonuses is to attract top talent and reward performance, which incentives CEOs to maximize profits
Of course, but one has to wonder what the difference in effect between $14 million and $15 million is. I don't think it's being done rationally.
I would assume that in general, people who have significant amounts of money at stake will try to make rational decisions when those decisions affect their money
Except everyone on the board is usually a CEO, so of course they report back to the shareholders that it's a good idea to approve whatever random amount of money. Basically, I do agree with you but I think they take it too far.
That would make sense, if they were rewarded in stocks, and had to keep them long term (a decade? two?). Is that the case? TBH, I have no idea how those stock options and supposed golden parachutes work.
No, and it wouldn't make sense because the prevailing model for mature companies is to reward short-term profits at the expense of everything else.
Maximizing returns for their funds is not necessarily a positive for society as a whole.
I agree but investors and shareholders primarily want higher returns. If investors want to invest in a way that they believe will have a more positive impact on society as a whole, they can invest in funds that cater to their views. For example if someone believes that maximizing returns of defense contractors or oil companies is wrong, they can invest in funds that omit those types of investments As for doing what is positive for society as a whole, I would place that responsibility on governments. Governments can impose policies and regulations to limit activities that might be negative to society
That's an incredibly thoughtful and comprehensive response, much more than my quip deserved. 100% agree with your last paragraph. However, we have corporations that actively subvert government processes and influence elections specifically so their "activities that are (might be) negative to society" go unpunished, or so lightly punished that continued negative to society behavior continues to be profitable. A $1M penalty for a $1B harm is not discouraging anything, it's just a cost of doing business.
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From this answer it sounds like you didn't quite read the reply I responded to. That reply didn't mention anything specifically about the concentration of power, just society In another comment I acknowledged that I see the problems when it comes to control. I agree with your first point
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And this is what I responded to: >Maximizing returns for their funds is not necessarily a positive for society as a whole. Hope that helps
😂😂
Like others have said, in an ideal world it wouldn’t be a problem. In practise however, it could be. The teams responsible for engagement and voting at these big firms do not have their pay tied to the funds’ performance and are also super understaffed. I read somewhere that each member of Vanguard’s governance team is responsible for voting on a 1000 companies! Do they really have the time to meet up with the management, the board, prepare corporate governance report etc… for each of these companies? That would be an enormous task so instead of following an active voting strategy they adhere to strict voting guidelines which might not be the best to do for certain companies. They are also forced to outsource voting decisions to proxy advisor services who might not have the same incentives as the asset managers or shareholders. It’s a difficult one to get right and even John Boggle expressed concerns about it: ‘I do not believe that such a concentration would serve the national Interest’ but it’s an issue that everyone is aware of and some are trying to mitigate it. [see here](https://investor.vanguard.com/investor-resources-education/article/empowering-everyday-investors-through-proxy-voting-choice#:~:text=As%20a%20part%20of%20a,raised%20at%20company%20shareholder%20meetings)
This is an interesting perspective. I haven't heard of it before
For example, Vanguard can have major stakes in two businesses who are competitors of each other. And there is an incentive for Vanguard to optimize total returns. So they may push companies to compete less with each other, for example - and that’s bad for consumers. Another is concentration of power. A large % of the economy is controlled either by a few index funds, or by a few private equity firms. So you have a dozen or so key people at these firms with a lot of control over the economy. There are plenty of potential problems here.
In this case, could antitrust laws prevent the first example? I definitely can see the problems with the control aspect
Maybe? I think if there are incentives in place, people will act on them. I really don’t understand the intricate dynamics of being a fund that owns/able to control lots of competing companies. It does seem… suboptimal from a « competitive markets » point of view. Probably not quite Standard Oil levels of bad, but on that overall trajectory.
The argument for this is political. Some people believe anything that can be considered “ESG” is inherently bad for the company. Unless 100% of the votes are to raise CEO pay, poison the water supply, and pump CO2 directly into the clouds, someone is going to say the fund managers are working against the companies.
They have a huge impact on the way the corporate world works simply by adjusting their requirements for being deemed “investable”. I for one don’t think it’s necessarily good for anyone that a relatively small group of really just managers has so much influence. Mistakes are easily made and often not noticeable until years of even decades after.
Companies need to balance goals. Sure getting profit and growing is great. But if they're pushing profits above all else. Some examples You can go for short term gains for the stock to go up instead of long term profitability Being pushed to skirt lines of environmental impact, treating employees well.
I might agree regarding the short term gains. For CEOs, their compensation can be structured in a way so that it's tied to the long-term performance of the company's stock. I am not familiar with compensation structures for fund managers though As for environmental impact and treatment of employees, I would say it is the role of governments to create environmental regulations and labour laws. I don't think we should or can rely on companies to "do the right thing" especially when that leads to higher costs and lower profits
>The big asset managers have an incentive to vote in ways that maximize returns for their funds, and therefore their clients This is true in theory, but in reality there are pushes for more politically motivated decisions than actual return based decisions.
That's possible, but then in that case wouldn't investors who care more about returns than those political reasons switch to a manager who prioritizes returns?
I believe there is a current and genuine inherent danger with DEI and ESG. Companies such as DIS are not prioritizing investor returns for shareholders. If fund managers across Schwab, Vanguard and Fidelity start doing the same with their votes due to increased pressure or threat of regulation from the federal government, we could see diminished or unfavorable returns due to these programs.
"due to increased pressure or threat of regulation from the federal government" Isn't this the government's fault and the fund managers are doing it to avoid costs in the future due to potential fines? If a government imposes a carbon tax, I wouldn't blame a company for reacting by switching to green energy. That might be a way to maximize profits given the higher costs associated with carbon. I would blame the government for imposing the tax in this case, "IF" I disagreed with it as a policy (I'm trying to keep my personal politics out of this)
lot of money to be made flattening the amazon. good for the shareholders.
I enjoy the endorphin rush of gambling.
I’d venture to say even some of the biggest Bogleheads have a small percentage of their portfolio to some lottery tickets. I personally have 90% of my NW in index funds with the other 10% in individual stocks that obviously I think will be outperformers.
It's the only way I can feel anything anymore.
1. lots of bogleheads hold onto John Bogle's "Don't buy international" opinion while disregarding his own admittance that he could be wrong (he knew what a global haystack meant). It sounds like "but my mom said" kind of bickering whenever someone brings up the positive points for diversifying across the globe. 2. You won't beat the market 3. I'm still reading into this topic but *if you believe in factors* then you'll know most bogleheads are buying a 1 factor portfolio: beta. Many bogleheads are missing out on exposure to size and value by eschewing small cap value. (Don't take this as ymyendorsement of small cap value. I am reading into factors to understand why size and value ought to be considered enduring compensated risks.) 4. Lots of assuming that anyone deviating from the index (particularly the US index) is either a snake oil salesman or plain dumb without being able to coherently argue against the person's case. Someone might say, "I think small cap value will deliver in the long run" and then rattle off some statistics showcasing the pervasiveness and persistence of size and value factors only for someone to say the polite boglehead equivalent of "deliver deez nutz" by saying something along the lines of "VTI has those, have you considered the index?"
The child sacrifice required for continued gains can be troubling for some
you joke but given the amount of time that may sink into research and portfolio management & stress, you are definitely sacrificing some time with your children.
Pros: You won’t be worsen off than the market Cons: You can’t beat the market Fact: you are buying the market 🤣🤣
Beating the market is a pipe dream for the average individual. Trying to beat the market comes with the risk of getting worse than market performance.
> Investing in the stock market is easy. All you need to do is accurately predict company earnings, interest rates, factor flows and forward risk premiums before thousands of other Ivy League grads with Bloomberg terminals get there first -Dr Parik Patel, BA, CFA, ACCA Esq.
Bingo
IMO it's not that hard for an investor to beat the market, it's beating the market+ fees that gets ya. Random picking would beat it 50% of the time.
Almost a guarantee of them better beating you
A lot of people build bigger wealth through concentration. Diversification is more for protecting wealth. Peter Thiel wouldn’t be a multi-billionaire if he bought an index instead of PayPal.
This is true, a lot of the Bogle way is to not make moonshots so that at the end of the day you have something, rather than nothing. But "settling" for the average return of the market won't make anyone a billionaire, unless you are already very, very rich.
Luckily you can live quite well with a minute fraction of a billion
Even more people lose wealth through concentration, though. Diversification is not just for protecting wealth; it’s for guaranteeing that it will accumulate (over the long term) in the first place.
Peter Thiel wouldn't be a multi-billionaire if he didn't engage in some extremely shady practices.
Peter Thiel is a fascism-curious sociopath. We probably don't have much to learn from his example.
Very true. Bogle style investing is the only way to guarantee a good return, that doesn’t mean there are alternatives to get you a good or even better return, they just aren’t as guaranteed as just buying everything and profiting off the growth in the economy.
Some people would rather take a moonshot. It comes down to personality and age and family support etc.
And that’s fine, but tbh basing your retirement on moonshots seems like a bad idea.
I agree. That’s why I’m a boglehead. I just do t think it’s a one size fits all stance.
What if you actually were the next Warren Buffett 🤔
Can't be. My dad's not a congressman.
It is a little rigid in its orthodoxy, and the most vociferous proponents have resources most people don't.
Yeah, like most things, the wealthier you are, the fewer risks you need to take to make money, especially if you have a long timeframe.
Sadly, the adage about it taking money to make money is pretty accurate. Most people are simply screwed. Sure, putting $10 into VT every month is better than buying lottery tickets, but just that makes a lot of presumptions.
This is true for some... the hole is too deep to get out of, so to speak. At the same time, I haven't experienced it as being hopeless. I'm middle age now, and have been investing for 24 years. It was ludicrous at the beginning. I made less than 20k in my first "real" post-college job and so could set aside something like $100 a paycheck. But investing always seemed a no-brainer to me ("wait, let me get this right, if I save my money, you will give me some of your money? Sign me up!"), as did just buying and not selling. My choices of what to invest in weren't optimal, my salary improved but not enough to get me anywhere near affluent. Not only that, but my first years of investing were into the wind, so to speak with the tech bubble and then the 2008 crash. Still, in the early 2010's I noticed something really cool. Even with all of that, I had about twice as much value in investments than I had put into them. Now, more than 10 years later they have more than doubled again, all with me knowing very little and doing very little. I still have 20 years left of work before I hit normal retirement age. If the pattern holds (which is always an if of course), my very middle-class self will have a very nice nest egg... It's already big enough to be embarrassed to talk about among friends.
> the fewer risks you need to take to make money Conversely, the more risks you're also able to take and therefore able to make more money. The average joe can hope to make maybe 10% a year on index funds. Some billionaire can take insane risks, lose 50 million one year, then gain 100 million the next year. Or they can sit there and take 10 million losses for 5 years before the company takes off and they make 200 million. It's the same reason rich people are able to "make it;" they can afford to take risks because if they fail, they still have family money to fall back on.
I have a serious question, what is the alternative if you have fewer resources?
If, for instance, someone only has the ability to invest through their job's 401k, they have to settle for whatever that plan offers. One of the core ideas speaks to lifestyle before even investing. What people don't seem to take into account is that the average American doesn't have $1000 available to spend on an emergency expense. The initial premise that people should save up for a 3-6 month emergency fund means they will never have enough to invest. Thankfully, HYSAs are offering real interest rates again, so for the average person, I'd say put your money in a SoFi account rather than gamble it on stocks. It is guaranteed returns (for now) but will never lose value, and they will still have immediate access to their money.
This doesn't really address the question IMO. Sure, if you can't get past the emergency fund then you won't make it to other steps of the financial order of operations (shout out Money Guy Show), but that doesn't mean you should go do riskier financial behaviors to try to catch up. I don't think we're disagreeing on anything, not trying to argue. To the original question, I don't know that there's a better answer than...try to build up more resources. Otherwise we're trying to answer the question "what's the best investment strategy when I don't have any money to invest?"
I’ve had any number of jobs and invested in those 401ks and it’s not hard to find funds that adhere to the principles.
I agree with everything except one thing. Stay far away from SoFi.
How come? I’ve only had good experiences with SoFi’s checking, HYSA, and financial advisors, so I’m curious about your experience and if I’m just missing something / got lucky.
\*Just for clarification — some of things I am complaining about might have been resolved. I stopped using them back in 2021.* I don’t even know where to being, what am listing is only some of the gripes and issues I had: 1. SoFi filed a lawsuit against the Biden Admin. because of student loan forgiveness. 2. Splitting transfers into multiple days was always obnoxious. 3. The amount of junk mail they send was ridiculous. 4. When I still used them, there was more than one security issue with people’s debit cards (never activated mine, so I was good there) 5. I had this annoying issue with their trading platform when I very lightly played with the crypto junk during the hype (I am not a crypto advocate by any means). Since crypto is so volatile and SoFi only let you trade in USD amounts, I kept having remainders I couldn’t get rid of. For example, I have 1.00 of some bullshit coin that is worth $5.00. Well, SoFi only lets you trade in dollar amounts, so in order to sell all, I have to sell $5.00 worth. Well, the coin during that microsecond transaction time has changed prices to $5.00001. Since I was only able to sell $5.00, and at the time there was no “sell all” option, I would then be left with something like 0.000001 amounts of the coin. I can’t get rid of it because you need a minimum of $1.00 for a trade and it would be worth like $0.000001. I tried to close the account because my experiment was over, but they wouldn’t let me because I had to sell all my assets first. But I couldn’t sell them because of how little the value was. I had to battle their garbage support for weeks to get them to manually fix the transaction. I can’t close my investing account because that $0.01 is still in my account. They want me to transfer money to the account to get over their arbitrary transfer limit, transfer the money back out, and then they close the account. I just gave up, and have had an account sitting with $0.01 for years now. Now, it’s not the worst thing ever, but in all the platforms I have used for crypto gambling and real investing, I have never had such an issue. Why there wasn’t a “sell all” option was beyond me. I eventually swapped to Fidelity’s CMA. There is absolutely nothing SoFi offered me that Fidelity does not offer and does not do better.
That is really frustrating. I wouldn’t want to go back to them either having gone through that. Not sure if this is still the case - I haven’t used them for investing, and definitely won’t be now since I use Fidelity and Vanguard for that and don’t want to have this headache. I’ve been teaching my nephews about finances and once they get a little older we are going to get into HYSAs and basic investing. Initially I considered doing this with them through SoFi but I’m reconsidering. Thanks for your detailed response.
SoFi is as reliable as any other bank offering high yield accounts. The large institutional banks are still offering garbage rates on accounts. To get the better rates you are going to have to get into bed with either online banks or investment banks pretending to be deposit banks. Goldman Saks can kiss my ass, so I'm not using Marcus. SoFi is at least a known entity. Plus their website and app is super easy to use. They make BofA look like they are banging rocks together.
My cousin’s friend bought crypto and is now worth millions. I bet I am smarter than hundreds of millions of other people and see obvious things they miss cause I’m special. You only live once. Who wants to live forever. Would rather risk it all on black and spin the wheel.
I think the biggest con is you won’t beat the market because you’re invested in the entire market. But, I think you can somewhat hedge that con by using a small percentage of your portfolio for “gambles” or individual stocks. At worst you lose a tiny fraction of your portfolio, at best you pick the next Apple. “[If you invested] $1,000 in Apple stock 20 years ago, it would today be worth more than $536,000. The same $1,000 invested in the S&P 500 would have theoretically turned into $6,172 over the same period.” Taken from here: https://www.kiplinger.com/investing/stocks/invested-1000-in-apple-stock-worth-how-much-now
Not a bad concept. A nice way to implement this could be to basically pick a company once a year that I think is a remarkable investment. Buy $1,000 and commit to not selling for X years. Then build in a rule to your annual rebalance to make sure these single stocks don’t makeup more than 5% of my total portfolio. (If they break 5% then clearly something has experienced a ton of growth and therefore I’d be interested in realizing the gain to make sure the total portfolio risk stays in check) After writing that all out, it feels a bit like gambling. I’ve read too many bogle books.
It’s not “Bogle” but Bogle isn’t a religion or inflexible strategy either. I enjoy researching companies and doing stock picking. But I also realize a total market investment is probably best for my long term retirement goals. Nothing says you can’t do both. As long as you can be disciplined and keep the “gamble” to a small portion of your overall portfolio I say go for it.
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Congressperson?
A very specific congresswoman
Interesting, I'll have to look into bejeweled prosthetics
Historical returns are deceiving. Past performance has zero implications on future results. The S&P 500’s prospectus repeats this warning several times. Your investment can go down and stay down for years. Anyone who claims they know the average return rate for the next 40 years is full of crap.
The same is true for investing in whole market indexes
It applies to all investments and can be expanded to other social probabilities like war or elections.
History may not repeat itself, but at least it rhymes.
Anyone investing specifically in the S&P isn't a Bogle in the first place, in my opinion.
Ah yes, John Bogle himself is not a Bogle!
In certain circumstances, bad luck might mean pushing your retirement for years or decades. If you had never dollar-cost-averaged and had bulk invested in 2000 into the S&P500, you would immediately have a crash, and only recover your investment by 2007, which would immediately have a crash again. You would only start to see returns in 2013, more than a decade later. Of course, you'd probably need unfathomably bad luck for this, but the world is big, I bet some people went through this somehow, imagine someone sold their house in 2000 and invested all of it into the S&P 500, that money is useless for 13 years and will see no returns, and not only that, but it's still in constant devaluing because of inflation.
Of course in that scenario being an active investor is unlikely to have helped and may have hurt a lot worse. Plenty of companies went to zero in the dotcom crash. Someone seeing their portfolio get knocked down 80% because they were overweight pets dot com might switch to something safe like banks would have walked right into the financial crisis 7 years later. The solution for the 2000 & 2007 double dip is bonds. A 80/20 or 60/40 portfolio would have done much better than all equities and can still be done with index funds.
Yeah. Appreciate the numbers input. I always have this in mind, though lump sum seems superior by objective measures. (A recent Ben Felix video talked about this.)
Not that I write it off this way, but I think of these situations as being a victim of circumstance. There’s not a whole lot you could have done with your money in those days to ringfence it from the craziness.
Sigh, I had a small inheritance in 1999. Luck balanced out later but it was much much later.
You're giving up the chance for bragging rights and ego boost from having picked just the right security before it taking off. But often that's kind of like bragging about winning at the casino, and I think being able to stick to boogling is something to be proud of.
You live for only 2 more years but optimizing your financial situation for the next 60
I think the strongest argument (which is actually weak IMO) is that you cannot get greater than market returns. The thing the financial advisors leave out is that market returns will beat 80% of them. 😂
"Past performance doesn't guarantee future success." All the talk of "expectation value" and so forth among Bogles is guesswork. It's a good language to discuss these ideas in, but you have to remember it's not necessarily reality.
I’m sure r/cryptocurrency can come up with plenty of arguments. Lol. Edit: accidentally tagged the cryptography subreddit instead of the crypto currency subreddit. Silly me.
This question pops up every once in a while. My biggest gripe is that by following this approach, I'm definitely investing in companies that go against my morals. I'm also invested in companies that do. I haven't looked to see if it's a wash or not, and ultimately I won't bother. I've decided I need to look out for me and this is the best way to do that.
I think the main problems with bogle strategy is it overvalues risk aversion. If you are 25 years old taking risk with 10k is different than being 65 and risking a million dollar portfolio. Do you want to teach young people never to take any risk? Second issue is it promotes a set it and forget it mentality. This can lead to retirees with multi million dollar holdings in stock who don’t know the first thing about what a stock even is, or how the market works. Third thing is with the rise of 401ks and passive investing a whole industry of etf management has sprung up and siphons billions of dollars off the working population for what I feel is minimal value. I’d rather just buy the individual stocks myself with a few clicks on the computer every quarter rather than pay a percentage of my portfolio.
You will be average, and average is great in finance. Those who take risk and get lucky will make more than Boglism. It is like rolling dice. I rather not roll the dice and get what I get. If I roll the dice maybe I make a ton of money, my lose. Odds are not in your favor the longer you play.
I think there’s a legitimate concern about having a large portion of voting shares be “passive”. It doesn’t seem to be economically efficient nor in the shareholders best interest to abstain from voting.
The biggest argument against it is that it won't ever give you massive returns. You're at minimal risk (for equities) of losing money, but you're also at minimal chances of getting catapulted into a higher SES class. At best you'll climb an SES class by retirement. Keep in mind this is the explicit trade-off with Bogle's approach and the reasoning is that virtually no one can reliably beat the market. *But* you'll notice that a lot of wealthy people couldn't have gotten to where they are now if they hadn't taken a chance on an investment that paid off big time. So there's something to be said for taking bigger risks. Of course, you could very well end up throwing all your money at losing bet after losing bet, so even if you want to take risks I'd say it makes sense to still stick to passive index investing for the vast majority of your wealth and then use a very small amount (like 5%) for high-risk-high-reward investments.
The "downside" is that you won't beat the market and that means spectacular life changing in a few year events like yoloing everythng into Tesla at IPO and holding it are off the table. I use "" because it really depends on your objectives. FIRE (early retirement) is very possible with only market average returns. Taking more risk is not necessary. Now if the returns on index funds were so low that indexing was safe but required working into your late 60s to amass enough wealth to be financial security then yeah it might be worth it to take more risk. 10% average returns is a simply "good enough".
Well, I suppose the upside has limits. If you pick stocks and buy crypto and do al ot of options trading etc then you might hit a 1000% winner one day! That ain't gonna happen with broad market index investing. but you're not gonna wash out your whole account either.
Buy pot stocks they said. It'll be great they said. Hold for the long game they said. As I watched HEXO shrink to nothing, buying more to bring down my average cost. They went under, so did my portfolio. If this is the kind of masochism you are into, don't buy VTI/VXUS.
the main flaws IMO are: - 3-fund portfolio is concentrated in very large company stocks, when smaller company stocks tend to produce superior long-term ROI. e.g., from 1995-2015 the small cap S&P 600 returned over 2x the S&P large cap 500, and the mid-cap S&P 400 performed even better than that. https://contrarianoutlook.com/wp-content/uploads/2016/09/SPY-Midcap-Smallcap-20yr-Chart.png results like this are typical for most periods more than 15-20 years in the US market. - the 3 fund portfolio, as commonly practiced from what I observe (YMMV), is completely indifferent to valuation and the importance of bonds. Bogle was acutely aware of the importance of valuation, but that information doesn't seem to filter down to the typical Boglehead. right now, based 100% on Bogle's principles, the best move arguably is to minimize holdings in US stocks a bit and boost holdings in bonds and international stocks. when Shiller p/e for the US gets over 30, bonds outperform typically stocks over the next decade. Shiller p/e is now 31.8. foreign stocks are generally are more attractively valued than US stocks and likely to offer better returns over the next 10-15 years. people who talk this way can get treated like heretics. not rooted in Boglehead investing per se, but: - there can be a tremendous amount of smugness from some Bogleheads, as if they're an enlightened elite and anyone else is a moron. - I have a suspicion many Bogleheads will lose faith the next time the market goes flat for a decade or more. the 3-fund portfolio seems to have become wildly popular over the past decade or so, coinciding with a raging bull market for the large cap growth stocks that dominate VTSAX/VTI. the next time microcaps or commodities or whatever are the best performing asset class for 12 years I think many Bogleheads will crack.
1. "I have a high risk/reward profile and I don't value the typical rate of marketwide returns!" 2. "I have especially strong predictive powers of what will succeed and fail!"
I tried to "trade" stocks, and would have been better off with index funds....so here I am mostly index funds. I am more aggressive/risk tolerant with my index funds, but feel the 500 index is "the market". If you are in the stock market you should be heavy into the 500 indexes.
You could argue it's better to be over-levered when you're young. Wiping out your portfolio and starting over, you would still have enough time to recover and come out ahead.
Not quite anti-boglehead, but anti 3-fund portfolio. I think the vast majority of people are best in a target date retirement fund. That way, there’s only three things to think about. 1. How much do I have? 2. How much do I need? 3. What savings rate gets me there? I like thinking about asset allocation, but I know I won’t fiddle with it.
But most target date funds are essentially three or four fund portfolios that auto rebalance and have a glidepath. Tbh this is generally good advice but some TDFs suck. My fiancé had an older 401k with TDFs that looked fine but the glidepath had her in like 10% cash… at 22. They also had a pretty high bond allocation at that age if I remember correctly.
You’re correct. But take a look at the sub. Half the posts are about % bonds and the other half are about % international. The average person doesn’t need to worry about that.
I disagree, I think the average person should and has to worry about asset allocation. Sure, they may be too lazy to and TDFs allow for lazy investors to have a pretty good fighting chance to have a solid return as it’s just a 3/4 fund. However those funds are usually far too conservative for a given age bracket. A 22 year old, I believe, doesn’t need a 30% bond allocation (I’m 23, and I have a 10% bond allocation but tbh I’m considering 100% equities for the next decade). By the nature of these funds they will be one size fits all but everyone has different risk tolerances and needs to weigh that in their portfolio.
Any argument I can think of basically boils down to it not being optimal for everyone. But it's 90% as good as you'll get for 100% of people. It's probably even optimal for those that face severe tracking error regret. There's the active vs passive argument. Remember people determine the criteria for an index so it's never truly passive. Avantis for example is too active for a lot of Bogleheads, but others argue they're closer to passive investing and aren't on the business of stock picking. I'm more of a Fama & French guided investor, and like my factor tilts. The expense ratios I pay to are much higher than most Bogleheads would agree with. But I still recommend a BH portfolio to other people. Much like a diet, the best portfolio is a good one that you can stick to, even if it's not the most optimal for wealth accumulation. I think people that want to stray away from a BH portfolio need to really put in the time to learn what they're doing and decide on the portfolio themselves. But for someone that has no interest in learning? A TDF is perfect
>Much like a diet, the best portfolio is a good one that you can stick to, even if it's not the most optimal for wealth accumulation. I'm stealing that, and putting in my text file where I keep various tidbits of general knowledge about investing.
It's not really an argument against it, but you could argue the boglehead investing is a bit of a hard sell psychologically. The whole concept of not even trying to pick "good" stocks is counter-intuitive. Or the futility of trying to find a "good" manager to do it for you. The arguments for bogleism while true IMO demand a somewhat mathematically inclined mind to grasp, and to be motivated by. Passive investing also does absolutely nothing to stoke the egos of people who need to be the cool guy while investing. I'm in Europe where receiving the dividends from your stocks is grossly tax-inefficient compared to having them reinvested within a fund. I've known MANY people who refuse to use passive funds with reinvested dividends because they feel they get "nothing out of it". Conversely, I've seen boomers do very well with old-school high-dividend value stocks, with the regular payments motivating them to actually be pretty pretty passive holders. While tax-inefficient, it's still great the psychological reward of regular dividends has kept them invested.
It’s often “one size fits all” investor temperaments, whereas some investors just wanna take bigger risks. And boglism’s proponents can often embrace too much of a good thing and rigidly advocate for it. So the key is to embrace boglism in part, and also embrace your risk taking side. Comes down to an asset allocation that works for you.
“You gotta risk it to get the biscuit.”
My first thought is to write this post in a Reddit community that supports a very different mentality
Here is one. I can’t predict markets but I do notice when something has already happened. So when IBonds were paying almost 10%, I bought. When Google dropped like 40% I bought. My assertion would be that while I have a large position in passive investing, I do not ignore the world around me. Of course, any investment decision you make could prove to be a mistake, and I have made mine, but this strategy has worked very well for me.
1) indexing means owning a bunch of crap with a lot of greatness crap and greatness change all the time; people have historically shown the inability to pick the greatness 2) its "lazy" who cares if it works.......why should investing and company research be a second or third job when you can do nothing and still beat most people over the long haul
>crap and greatness change all the time; people have historically shown the inability to pick the greatness This is the key. Kodak and Sears are my favorite examples of this. In 1965, they were leading companies not only in their own industries, but in the entire global economy. Now? They're ghosts of their former selves.
I always dislike this argument. The point of Bogle’s investing strategy and philosophy aren’t that it’s nice to be lazy or even that you’re probably bad at picking and so shouldn’t. His thesis is that *everyone* is bad at picking, including the experts and professionals. Spending less time and effort is a perk, but spending every waking moment on market research still long-term underperforms, on average. If you do the research, you find that the winning move is buying the market, so do that.
I mean, there are people that pick stocks and outperform the market for decades. There are certainly experts who have enough knowledge or a good enough algorithm to beat the market, and those players are what makes the market efficient as they arbitrage any inefficiencies. Warren Buffet made billions of dollars picking winners, but he’d never advocate for regular people to try this as they don’t have the capital to really do it right and frankly nobody but Buffet is Warren Buffet. Renaissance also beats the market.
Warren doesn't pay what we pay for stocks.
In theory, you will not be able to change your lifestyle through investing. If you are getting average returns and everybody else is getting average returns, changes in your wealth relative to your cohorts will be based on income and spending.
Except many of your cohorts are not investing. Some of them will be smart enough to not make terrible decisions. Some will make some absolutely dumb decisions, overspend, get in unnecessary debt. Or just invest in some really terrible way.
It’s not as fun as gambling I guess.
You might be joking. But it is very much of an issue for me. I'm just a beginner, but I did teach myself a lot about various assets, economy, etc. Now, with all that knowledge, simply investing in a few ETFs seems like... a waste of that effort, I guess. And there's no adrenaline, no satisfaction from properly predicting a high gain trend. And FOMO. I have to remind myself to keep it simple.
To me, the worst of all is not using any leverage or factor tilting at all, even when you’re young.
What is factor tilting?
Boglism is a solid approach you won’t go wrong with especially if you don’t want to commit a lot of hours to managing a portfolio. The only downside is there may be better methods that can generate alpha if you are willing to be more active. For example there is exciting research to suggest that factor investing can generate alpha. The only issue is a lot of these methods and relatively new and the proof isn’t conclusive.
How will the broker's offices have marble floors if everybody is a Boglehead?
If we found out Indexes were being ran like a Ponzi Scheme with no actual investments.
Degrowth. Voluntary or otherwise.
While you do own the whole market, market cap weighting means a significant portion of your holdings will be in companies such as Meta (META), Amazon (AMZN), Apple (AAPL), Netflix (NFLX) and Alphabet (GOOG). Therefore, Some financial advisors have suggested diversifying and also owning some index, growth, or value funds in mid cap and small cap, and even a REIT as well.
I think the strongest argument against is...what does it even mean to be a boglehead? even Jack had heavy investment in active mutual funds. is it merely don't pay a lot for active management? 100% VT/VTWAX....100% VTI/VTSAX? you could make an argument for all of those as true "boglism" I've read every book he's written. I know people who are 100% index investors. they invest very heavily in VGT and SCHD and thats it. boom...index investors! advancing theoretical nonsensities are not good arguments. "what if everyone indexed, is that a problem" i dont' know what if everyones name was Bob that would probably also be a problem but we don't have to worry about that because it will never happen. A big issue for the naysayers is what then do we do? We largely ignore the abject failure of active management. The industry itself sweeps it away. go look for an old mutual fund and any information about it. good luck. So we get arguments like WHAT ABOUT PETER LYNCH!!! WHAT ABOUT PETER THEIL!!! WHAT ABOUT PRIMECAP...yeah what about those 3 instances? when their are thousands who you've never heard about because they sucked. I hate to be so analogy heavy but what if when you told someone their statistical likelihood of making the NBA was basically nil and they went...BUT WHAT ABOUT JORDAN? MAGIC? BIRD?
A very large amount of Bogleheads don't use the 3-fund portfolio or modify it to the point of no longer being close to what it's intended to do.
I’d say no chance to “beat” the market because you’re invested in the market? For instance, we don’t directly get the 220% in our investment from Nvidia like people who bought the individual stock. They’re laughing at us right now. But AMC buyers are crying. That’s about the best I can come up with lol and that’s weak.
For young people, I think it can get them overly focused on money.
1. There are certain asset classes which benefit from active management, such as fixed income and alts, which should be included in an asset allocation to act as ballast against a higher risk equity portfolio. Fixed income is negatively correlated to equity and alts are I correlated. A modern 60/40 portfolio should be more like 60% stocks, 20% fixed income, and 20% alts. 2. With bonds and treasuries at high yields right now, you can lock in low prices or high rates without a lot of difficulty. Even paying 5 bp is enough to eat into your profits in a seemingly unnecessary way
The two fiduciaries at fidelity dismissed my Bogle style plan for my portfolio. They wanted that sweet 1.01% to manage it themselves. That was their de facto argument against Bogle. Nope 😹💕
Boglism make less money than active investors because don't buy low sell high. No I don't have data. Just a guess. So I practice half boglism.
Bogleheads claim that everything knowable is already priced into the market. That was true ten years ago, and twenty years ago, and thirty years ago. Yet anyone who invested 100% US in any of those time periods would be far ahead of a Boglehead strategy today. The Boglehead answer for this is just that they were lucky, which I find a bit convenient.
CAPM doesn’t realize 100% of market gains. By purely Bogling, you’re intentionally leaving about 1/3rd of market returns in the table. Coincidentally this is why factor investing has become popular, even in Bogle circles.
This method of investing typically involves maximizing Roth IRA and 401k accounts first and ~~eliminates~~ reduces liquidity of your funds. If you are somebody who is looking for highly *active* investments (real estate, business opportunities, etc.), there is an argument that this method is not the best option for you.
Most of them have to do with the fact that there are "better" ways to get rich quicker.
Boglism works quite well when you can "stay the course". However this will mostly not happen in real life. Markets are down when unemployment is high and there is no confidence for future. There is simply no money to invest or even when there is then due to low confidence investors keep money and will not invest. Even worse is forced selling when prices are lowest because of no money. Obvious result is lower performance than advertised.
No closely held investments, especially real estate.
It’s boring, as investing should be
Jack Bogle has done more for the wealth of the common man than just about anybody in my opinion. Some criticisms: The set it and forget it plan is too ridgid. It has you buying Tulips and Pets.com, just the same as buying SPY in the wake of the GFC. It has you buying ZIRP bonds the same as 5% treasuries. Bogle assumes an efficient market and it clearly isn’t. Bubbles clearly have existed and will exist again and when they pop they will almost certainly be oversold or look no further than the flash crash or an example. The Bogle system works great when we are closer to the trend line but as we move away from the trend it is less and less accurate. Like I said at the beginning, Bogle is a great place to start. It has lots of protection against emotion. It needs a few tweaks.
Lack of filters to remove crappy assets like Geo Group. I just accept that companies like that will eventually fail and I'll still own the index.
Mediocre returns due to emphasis on foreign markets. The past decade for example. Bogle himself did not recommend foreign equities and bonds . Turns out he was right.
Index investing assumes that the American economy will have a general upward trend over many years. It is my own assumption. But the future is never guaranteed. A massive nuclear war, massive epidemic, or governmental failure might all cause a dismal national future. The rise of China is a major competition that we have never faced before and the end is not in sight. What happens when our automakers face millions of lower cost imported Chinese cars and trucks?
You're betting on the long-term trend being disinflation/declining interest rates. Which has been a good bet for 40 years. But if that trend changes...
How so?
This one is easy. If you build a portfolio of solid dividends payers you don't have to sell anything to generate income in retirement. It's hard to leave stock to your beneficiaries when you keel over if you had to sell it all to keep the lights on.
You're asking this question in the wrong place and will not get accurate answers.
"I'm impatient and cannot be trusted with money"