Warning: What you invest in may be dangerous to your wealth
Do Your Investments tilt towards Large Cap Growth Stocks?
Vanguard 500 Index (VFINX)went down 38% in 2000-02, 37% in 2008, and the S&P 500 had its worst 10-year period ever from March 1999 to March 2009.
Roughly one third of Vanguard’s $2.8 trillion in mutual funds and exchange-traded funds (setting aside money market funds and not double-counting by including funds-of-funds) is in U.S. large-cap index portfolios. Another third is held by other flavors of index fund, and the final third is actively invested.*
Among the major asset categories, Large Cap Growth Stocks have been the worst performing asset class over the last 15 years.
While another third is invested in “other flavors,” the final third is actively-managed. Well, the performance of active-management isn’t very good.
Percentage of Active Funds Outperformed by Benchmark
10 Years (1/1/1995 to 12/31/2014) 10 Years Ending 12/31/2014
Large-Cap Domestic Equity Funds 78.8%
Mid-Cap Domestic Equity Funds 89.4%
Small-Cap Domestic Equity Funds 89.3%
Multi-Cap Domestic Equity Funds 83.2%
Source: S&P Dow Jones SPIVA® U.S. Year-End 2014 Scorecard
Fund managers that try to “beat the index” don’t have a very good record. If fund managers fail to beat it’s index 78%-89% of the time, what is the point? You’re losing! If you were to have open heart surgery and the doctor said you had a 20%-30% chance of leaving the operating room in good shape…..well, you may want to reconsider. However, if the doctor said your chances were between 80%-90% you’d be ok, chances are you’d elect that surgery. That’s what investing in the proper indexes, or asset class funds, provide. Too many investors focus on the S&P500 as a barometer for the market. Yes, it’s fun to watch it go up, but you’re really watching the worst performing asset category (over the last 15 years). How many football fans track (or give much thought) to the performance of the Jacksonville Jaguars, one of the worst football teams in recent years, for their football leagues? Probably, not many. When investors know where returns come from, which asset classes to invest in, and the proper way to diversify a portfolio, the investor level of success should greatly improve.
What you invest in may be dangerous to your wealth!
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