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| | | |-+  Is stock index investing a sham?
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Tommy
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« on: September 07, 2007, 05:48:42 PM »

Today I pop the controversial question: Is stock index investing a sham?

Of course, I can't possibly write off the decades of history surrounding the trillion dollar index fund and stock investing industry as mere "sham"! And that was not my intention. The question is no more than an excuse for me to get off my arse and do some research. (the fact that having this question in the title attracts attention is mere coincidence i assure you XD )

But someone got to ask the question. Someone got to take a look at the data. It doesn't have to be me but i went ahead and did it anyway:

http://practicaleconomics.blogspot.com/2007/09/is-stock-index-investing-sham.html

Warning: The content of this blog post might shake the beliefs of some readers. The author takes no responsibility for any trauma readers might suffer. After all, he is just presenting data. Smiley
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jag82
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« Reply #1 on: September 12, 2007, 07:39:47 AM »

Index investing is actually the perfect solution for those who have no time to actively invest, and yet want to avoid all the expenses a mutual fund typically charge.

If you can't beat 'em, join 'em. That's the basis of index investing. You do not need to worry about beating the market - just mirroring it is good enough.

Jag
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Tommy
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« Reply #2 on: September 13, 2007, 05:21:45 AM »

Index investing is actually the perfect solution for those who have no time to actively invest, and yet want to avoid all the expenses a mutual fund typically charge.

This is assuming that index investing has net positive returns in the long run and that mutual funds work as purported.

If you can't beat 'em, join 'em. That's the basis of index investing. You do not need to worry about beating the market - just mirroring it is good enough.

This is assuming that mutual funds are not losers. (beating losers is fun but joining them?) Also assuming that putting money in the index is actually "investing" instead of throwing money in the bank.

I think the world of finance and investing is ridden with assumptions that are often not verified, even by professionals. Hence, i keep trying to ask myself simple questions like "does indexing really work?" and try to answer them through research.

Thats the whole point of the article. Did you read it? Smiley
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jag82
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« Reply #3 on: September 13, 2007, 05:35:39 AM »

Hi Tommy,

Yep, those are assumptions. Personally I prefer to invest myself than allow someone to do it for me, or the stock market index to dictate my returns.

For sure, there are great fund managers whose portfolio far surpassed the stock market's performance. Having said that, great fund managers like Peter Lynch are few and far between.

Typically, the majority of funds underperformed the market in the long run. Add on to the expensive fees, mutual funds may not be a attractive proposition to certain investors.

Well, I'm talking from the perspective of a DIY investor, so I'm biased against mutual funds.

Having said that, different products suit different people since everyone mileage varies.

Thanks Tommy for all your input. Please keep them coming. We need such spark.

Jag

P.S I confess that I have only browsed through your article. Will take a look at your blog in greater detail later. =)
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wil74
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« Reply #4 on: November 06, 2008, 07:35:21 AM »

I have taken a look at your blog.
Have you taken a look at what would the returns be liked if you have the dividends reinvested thru' the years? It might have averaged 8-10% pa in the long run.

Anyway, for myself, I am more interested in managing a Portfolio instead of concentrating all your available money into 1 asset class called equities.
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exige
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« Reply #5 on: January 29, 2010, 07:05:28 AM »

This is a reply to a very old thread. But oh well. Better late than never right?

Index investing is actually the perfect solution for those who have no time to actively invest, and yet want to avoid all the expenses a mutual fund typically charge.
...

I am actually quite amused at how so many people do not take their investments seriously enough.

For example, let's say an average retail stock investor's earning between $2k to $6k per month. Apart from those who just started working, most of the investors who participate in the stock market, be it white collared executives who have worked for more than half a decade, or housewives, they typically have a comfortable five figure sum of money that they are investing.

My question is this: Why can these retail investors work for 8 hours a day, 5 days a week for a $2k to $6k salary, while they do not bother to even spend one hour a week to study how to manage or at least safeguard their five-figure portfolio or investments?

Anyway, just to make sure I am not off-topic, I see stock index investment as an investment option for those who are only looking at investing (or some call it: "gaining exposure") to the specific market/economy in general. Eg: STI for Singapore market, Nikkei index for Japan economy, etc.
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