quote:

Originally posted by JALLEN:


For outcome and conclusions, see the report.

Actually, those who are contemplating these matters would be well served to read ALL of Buffett's Chairman’s Letters, starting all the way back in 1977. It is the cheapest thing to getting an MBA I can imagine.

from the report

"Often, high-grade bonds in an investment portfolio increase its risk".

Every fund manager, trust department inv. committee , not to mention the interweb finace experts are clutching their pearls right now, BUT BONDS! Doesn't the 1st law of thermo-financics DEMAND bonds in every portfolio?

And if you think bonds are fun, take a couple of bond funds out and play with them.

At the risk of stating the obvious, the reason to buy bonds is 1st, if you are a bank and are limited to that investment, second, if you are another entity prevented from buying equities for your own good and the dough has to go somewhere, and third if you find a bond that has unrealized, or better, undiscovered value in it.
A marvelous example of the latter is from Buffet himself in the middle 80's; Washington's Hanford Nuke site was melting down and the bonds issued to fund it were sinking more with every spark from the reactors (metaphorically of course, I don't think reactors spark, but what do I know) anyhoo the bonds had become junk, every issue was falling to pennies. Buffet or more likely his alter-ego Monger saw that one of the bonds although issued by Hanford did not rely on Hanford for its' servicing and was not threatened at all, except by its unfortunate name. Buffet quietly bought a metric boat load of them and when the market figured it out, and by memory, they figured it out when they became curious that one bond of the several was actually going up (because of Buffet's buying), the bond regained its boring bond price and Buffet made another zillion. so the third reason displayed here, if you find value, not a lock step to a 'balanced' portfolio.

[QUOTE]Originally posted by Rey HRH:
You need to look at the big picture.

The third most important aspect when you're holding mutual funds or any securities, is how much overlap do you have when you put all your holdings together ? One fund will hold a mixture of securities and another fund you hold will hold their mixture of securities. But when you consider your whole portfolio, are you actually over-exposed with one type of securities or even one particular stock and under-exposed when it comes to other types of sectors/ stocks.

/QUOTE]

Utterly, totally on-point and overlooked by a very large number of advisors and their clients.

quote:

Originally posted by Sig209:
1) They are a very solid option for a lot of people.

2)Kind of like a Glock 19.

3)You could do a lot worse IMO.

4)And not just because of the 'mix' but Vanguard's are extremely low cost.

Big fan of Vanguard.

---------------------------------------------

1. No they aren't

2. More like a High Point

3. Certainly, if you tried.

4. Like buying a Yugo? It won't get you where you need to be but it didn't cost much.

quote:

Originally posted by tatortodd:

quote:

Originally posted by BigWhup:
My concern is that the Target Date Funds get too conservative toward the retirement date.

I've seen several articles suggesting to compensate by buying one that is 5 or 10 years beyond your actual retirement date. For example, if one were to plan to retire in 2028 they could buy:

the 2035 instead of the 2030.

60% 2040 and 40% 2035 instead of the 2030.

Much better solution; if you are lucky your 'time horizon' as the boys call it doesn't mature when you retire, that's a career point, not a Time Horizon. But isn't it enteresting that you must get this info by your own research, and good for you, by the way, instead of the internal memos that I presume go out to you somewhere between quarterly and constantly telling you how great your investments are for you?

quote:

Originally posted by wishfull thinker:
[QUOTE]Originally posted by Rey HRH:
You need to look at the big picture.

The third most important aspect when you're holding mutual funds or any securities, is how much overlap do you have when you put all your holdings together ? One fund will hold a mixture of securities and another fund you hold will hold their mixture of securities. But when you consider your whole portfolio, are you actually over-exposed with one type of securities or even one particular stock and under-exposed when it comes to other types of sectors/ stocks.

/QUOTE]

Utterly, totally on-point and overlooked by a very large number of advisors and their clients.

“EXPOSURE” is one of the most absurd notions in investment management.

It implies that one can and should “manage” by discerning in advance the issues and industries, or even markets, deemed most likely to do better in the immediate future than others. It sounds so soothing, so benign, so wise, even. This is speculation, not investing.

If you are going to go to that much trouble, why not concentrate on looking for undervalued stocks? Book value, earnings, historical prices, comparable to what competitors are available for. These are based on available facts, not guesses about future events.

quote:

Originally posted by JALLEN:

quote:

Originally posted by wishfull thinker:
[QUOTE]Originally posted by Rey HRH:
You need to look at the big picture.

The third most important aspect when you're holding mutual funds or any securities, is how much overlap do you have when you put all your holdings together ? One fund will hold a mixture of securities and another fund you hold will hold their mixture of securities. But when you consider your whole portfolio, are you actually over-exposed with one type of securities or even one particular stock and under-exposed when it comes to other types of sectors/ stocks.

/QUOTE]

Utterly, totally on-point and overlooked by a very large number of advisors and their clients.

“EXPOSURE” is one of the most absurd notions in investment management.

It implies that one can and should “manage” by discerning in advance the issues and industries, or even markets, deemed most likely to do better in the immediate future than others. It sounds so soothing, so benign, so wise, even. This is speculation, not investing.

If you are going to go to that much trouble, why not concentrate on looking for undervalued stocks? Book value, earnings, historical prices, comparable to what competitors are available for. These are based on available facts, not guesses about future events.

If you do it right you can make a whole bunch of money by buying one stock, Berkshire Hathaway comes to mind.

By the way, in the above I was commenting on the concentration, not the exposure. I agree with you though.

I'm with JALLEN and others on this.
The fact that something like 85% of all mutual funds fail to beat their benchmarks over time is another reason to stick with a low fee index fund.
Although I will acknowledge that Vanguard started this trend Fidelity actually has (for the most part) lower fees than Vanguard in their major index funds.

Being just a year or so from retirement I have part of our portfolio managed by Fidelity as a way to balance the overall aggressive nature of my own investing It has been getting decent results but no where near the Index Funds and a few otheres that I am in.

Also, one basic assumption that most Fund companies assume is that when you retire you will be pulling out principle from your account to live on...that is a potentially big mistake. If you are fortunate enough to start down this road to retirement at an early enough age you should only have to withdraw a portion of your capital gains on an averaged yearly basis. Thereby increasing your portfolio (on average) your entire life...You cannot do that with bonds IMHO.

quote:

Originally posted by wishfull thinker:


If you do it right you can make a whole bunch of money by buying one stock, Berkshire Hathaway comes to mind.

By the way, in the above I was commenting on the concentration, not the exposure. I agree with you though.

Every time someone suggests Berkshire Hathaway, I point out that if you had bought $10,000 of Berkshire Hathaway on the day Warren Buffett took control, in 1965, you would now have something like $300 million in value. You would be rich, but you never have received a penny in cash. You didn’t drive a nicer car, live in a better house, take more or longer vacations, send your kids to better schools or your wife to more expensive shops.

Anywhere long the way, you might have sold, but you would no longer own the shares sold.

Berkshire Hathaway shares have declined close to or more than 50% 3 or 4 times in that ~50 years, just to scare off all the sissies.

quote:

Originally posted by JALLEN:

quote:

Originally posted by Rey HRH:
You need to look at the big picture.

The third most important aspect when you're holding mutual funds or any securities, is how much overlap do you have when you put all your holdings together ? One fund will hold a mixture of securities and another fund you hold will hold their mixture of securities. But when you consider your whole portfolio, are you actually over-exposed with one type of securities or even one particular stock and under-exposed when it comes to other types of sectors/ stocks.

“EXPOSURE” is one of the most absurd notions in investment management.

It implies that one can and should “manage” by discerning in advance the issues and industries, or even markets, deemed most likely to do better in the immediate future than others. It sounds so soothing, so benign, so wise, even. This is speculation, not investing.

If you are going to go to that much trouble, why not concentrate on looking for undervalued stocks? Book value, earnings, historical prices, comparable to what competitors are available for. These are based on available facts, not guesses about future events.

You're going to have to point to where I imply one should forecast any issues in the immediate future.

What I am pointing out is that idea that people buy mutual funds for stock diversification while, at the same time, having the mutual fund's philosophy in line with their own. And often, people who buy mutual funds have a collection of mutual funds as a way to diversify their diversifications. But the resulting portfolio of mutual funds is difficult for the individual investor to analyze is does the resulting securities mix of the different mutual fund still in line with what the investor was aiming to get.

I didn't say anything about making calls where the future is headed; I'm saying is the mixture of securities held by the mutual funds owned actually give profile the investor is seeking.

Do you still have a problem with what I'm saying as I have explained it?

quote:

Originally posted by Rey HRH:

You're going to have to point to where I imply one should forecast any issues in the immediate future.

What I am pointing out is that idea that people buy mutual funds for stock diversification while, at the same time, having the mutual fund's philosophy in line with their own. And often, people who buy mutual funds have a collection of mutual funds as a way to diversify their diversifications. But the resulting portfolio of mutual funds is difficult for the individual investor to analyze is does the resulting securities mix of the different mutual fund still in line with what the investor was aiming to get.

I didn't say anything about making calls where the future is headed; I'm saying is the mixture of securities held by the mutual funds owned actually give profile the investor is seeking.

Do you still have a problem with what I'm saying as I have explained it?

I was not necessarily responding to your comment as much as the term “exposure,” for the reasons stated.

Diversification is an attempt to avoid, or minimize, risk, by spreading assets into different companies, industries, markets, or alternatively, to catch the lightning in one or more bottles by exposing assets to whatever good things are deemed to be out there in the future. I doubt anyone intentionally seeks exposure to a company or industry where the future is thought to be negative, like the dry bulk shipping industry a few years back.

These necessarily imply evaluating and forecasting the future. That is avoided when you base investments on analysis of financial statements, without unnecessary calculation or reliance on what the future holds. This is not completely risk free, mind you. I unfortunately took an exposure to Warren Buffett’s quote that “turnarounds seldom turn” in the dry bulk shipping industry.

Wow, lots of pontificating... Here is My $0.02

If you know nothing about investing, don't care to learn, don't care to invest time in understanding what your 401k is doing, and generally are not real bright financially, Target date funds are great.

If you are interested enough to review Morningstar ratings, Alpha, Beta, fee structures, performance to benchmark, on and on, then you can do better than a target date fund.

And both of these answers assume you have less than $100k invested. Once you have $100k, get out and if you are still in the first case, look for an advisor that knows what they are doing to help invest your money.

Most importantly, you really should not be in the first case. It is your money, you work hard for it, you should understand what to do with it.

By the way, in my never to be humble opinion, JALLEN has some of the best money advice on this board so pay attention folks, you can't get that stuff in a Masters level Finance class. Believe me, I have been in Masters level Finance classes and heard much less intelligent thoughts.

Great info here.

quote:

Originally posted by armedprof:


If you are interested enough to review Morningstar ratings, Alpha, Beta, fee structures, performance to benchmark, on and on, then you can do better than a target date fund.

And both of these answers assume you have less than $100k invested. Once you have $100k, get out and if you are still in the first case, look for an advisor that knows what they are doing to help invest your money.

This part of your reply seems inconsistent with much of the other above, or Jallen’s advice.

What you are suggesting is relying more heavily on my own education and efforts, which will never be professional in the arena, or a single advisor who also presumably has a more narrow range of experience or expertise than an army of fund managers selected with the same objectives by the firms noted above.

If the pros tend to underperform as has been noted here, how would it make sense to move further down the food chain of experience by gambling on either myself or one advisor, also selected by myself?

I've held my tongue til now, but will say there are also subscription investment advisors. As armedprof says above, you can do a good service to yourself if you are willing to do even a little bit of research. I subscribe to two services that initiate ideas for me. I read their reasons and conclusions why they like a certain stock and go from there. I've done very well. I spend perhaps 1/2 hour each day reviewing my portfolio.

I'd be happy to answer more specific questions if you're interested. Email in my profile.

quote:

Originally posted by armedprof:
Wow, lots of pontificating... Here is My $0.02

If you know nothing about investing, don't care to learn, don't care to invest time in understanding what your 401k is doing, and generally are not real bright financially, Target date funds are great.

If you are interested enough to review Morningstar ratings, Alpha, Beta, fee structures, performance to benchmark, on and on, then you can do better than a target date fund.

And both of these answers assume you have less than $100k invested. Once you have $100k, get out and if you are still in the first case, look for an advisor that knows what they are doing to help invest your money.

Most importantly, you really should not be in the first case. It is your money, you work hard for it, you should understand what to do with it.

By the way, in my never to be humble opinion, JALLEN has some of the best money advice on this board so pay attention folks, you can't get that stuff in a Masters level Finance class. Believe me, I have been in Masters level Finance classes and heard much less intelligent thoughts.

Wow, pretty extravagant. If it is even somewhat accurate it is because I took the Securities Analysis class back when it was taught from Graham and Dodd, decades before the Efficient Market Hypothesis took hold in college and university business departments. That’s the same book Warren Buffett was taught from, by Ben Graham directly, whereas the rest of us got it second hand. Still....

Too bad I didn’t realize what I had. The business and investment world was alive with conglomerateers, Jimmy Ling, Tex Thorton, Harold Geneen, our own Dean, George Kozmetsky who had teamed up with Henry Singleton to run wild with Teledyne. That’s where the action was, and with the mutual fund performance cult of swingers chasing high growth stocks. Graham and Dodd seemed old-fashioned, musty, staid and dull, no “get rich quick” excitement to it, like kissing your sister or something.

When I got out of the Navy, I went to work at E. F. Hutton, just in time to see the Dow go from ~930 to about 610. I remember trying to sell Texaco, a tremendous bargain then, solid finances, great earnings, big fat dividend. I did my own analysis and figured it was worth about $40 or so. It was in the low-mid 20’s. I never did a single share. People weren’t interested in stocks, and then I was hollered at for not selling mutual funds, for the fat 8% comissions, and I said, “I’m outa here!”

I don’t regret going to law school, and have no complaints, but I regard not making better use of what I had been taught as a squandered opportunity. You don’t want to squander opportunities. I managed investments as a lawyer, mostly, it turned out, real estate oriented. Same idea, really.

quote:

Originally posted by wishfull thinker:

quote:

Originally posted by tatortodd:

quote:

Originally posted by BigWhup:
My concern is that the Target Date Funds get too conservative toward the retirement date.

I've seen several articles suggesting to compensate by buying one that is 5 or 10 years beyond your actual retirement date. For example, if one were to plan to retire in 2028 they could buy:

the 2035 instead of the 2030.

60% 2040 and 40% 2035 instead of the 2030.

Much better solution; if you are lucky your 'time horizon' as the boys call it doesn't mature when you retire, that's a career point, not a Time Horizon. But isn't it enteresting that you must get this info by your own research, and good for you, by the way, instead of the internal memos that I presume go out to you somewhere between quarterly and constantly telling you how great your investments are for you?

Vanguard target date funds are a bit more aggressive at retirement, don’t arrive at their minimum equity exposure of 30% until 7 years after the date.

Rough thoughts on target date funds:

Most people are idiots when it comes to this stuff. My experience with a large corporate 401k plan is that the addition of target date funds has cut down drastically on both 1/n diversification and the 100% money market option. That is an improvement on both fronts. I think they also provide a bit of insurance for plan sponsors who don’t want to eventually get sued over the investment options in the plan.

My personal take on the asset class, if you can call it such, is that it’s unproven. We won’t know if it is a viable strategy until we see an employment life cycle worth of people go into retirement in a better financial position than they’d have been otherwise. My other big issue with them is that there is no way to compare apples to apples as they all are different, holding different assets, different asset classes and using different glide paths.

quote:

Originally posted by tha1000:
Rough thoughts on target date funds:

Most people are idiots when it comes to this stuff. My experience with a large corporate 401k plan is that the addition of target date funds has cut down drastically on both 1/n diversification and the 100% money market option. That is an improvement on both fronts. I think they also provide a bit of insurance for plan sponsors who don’t want to eventually get sued over the investment options in the plan.

My personal take on the asset class, if you can call it such, is that it’s unproven. We won’t know if it is a viable strategy until we see an employment life cycle worth of people go into retirement in a better financial position than they’d have been otherwise. My other big issue with them is that there is no way to compare apples to apples as they all are different, holding different assets, different asset classes and using different glide paths.

And to make it even more interesting, comparing past apples to apples, even if one could, has very little to do with future apples.

As is seen in all fund prospecti, “past performance does not necessarily predict future results.”

Good topic and I will read all the posts once I have time.

Just some initial thoughts after quickly reading some of the posts.

I personaly like the idea. I have stated my feeling about Vanguard in general previously.

Many people do not have much market knowledge. This can simplify things and some good can be made. Especially if you are early on and want to learn more. Or even later and do not have the time or willingness to get overly involved.


J, as to your comment here and every other thread on this topic in reference to bonds.

For those not elite, non city slickers types. Just your average joe that haul his own garbage to the local dump once a week or two. A bond fund is like that guy and his old pick up truck. I mean old seventies Ford or Chevy. Yes it is ugly, rusted, things don't work like the radio, etc. But it runs, is reliable, gets the job done. It is steady and slow, but never lets the guy down. He isn't ever going to try to make it something it isn't. But he will have it for the duration and there is always some positive about having it.

I could see putting a portion of ones portfolio in one of these funds. Might just do as well or better as a average investor wading his way through the jungle as we now have it.

This message has been edited. Last edited by: old rugged cross,

quote:

Originally posted by JALLEN:

quote:

Originally posted by tha1000:
Rough thoughts on target date funds:

Most people are idiots when it comes to this stuff. My experience with a large corporate 401k plan is that the addition of target date funds has cut down drastically on both 1/n diversification and the 100% money market option. That is an improvement on both fronts. I think they also provide a bit of insurance for plan sponsors who don’t want to eventually get sued over the investment options in the plan.

My personal take on the asset class, if you can call it such, is that it’s unproven. We won’t know if it is a viable strategy until we see an employment life cycle worth of people go into retirement in a better financial position than they’d have been otherwise. My other big issue with them is that there is no way to compare apples to apples as they all are different, holding different assets, different asset classes and using different glide paths.

And to make it even more interesting, comparing past apples to apples, even if one could, has very little to do with future apples.

As is seen in all fund prospecti, “past performance does not necessarily predict future results.”

There is only a very limited quantity of past apples to look at. No long term history of success.