pase0 said:While both Vanguard and Fidelity (and others) offer funds made up of other funds, the advantage of doing it yourself is more granularity and flexibility. You get to set the allocations and you get to pick the asset classes. As most of the bulk of modern research suggests that small value stocks have a higher return (albeit at a higher risk) than your plain jane large cap (S&P500), leaving out small cap value stocks and overweighting in large caps will cause an investor to lose out on some returns. There are many books and articles on this where the authors show how you can actually reduce your risk and increase returns with proper asset allocation. Of course, there is something to be said for simplicity. You can just own one of the fund of indexes or lifestyle funds and be done with it. However, you should expect lower returns at a similar amount of risk in doing so.Seems like you are taking an active-passive approach. If you know which sector is going to outperform, why waste your time with the broad indices. Put all your money in the higher risk and reward index. Again, you need only one index, say small cap value. Why overweight when you know the winner, why not go all-in?

Also can you tell me which asset allocation gives me a lower beta and a higher expected return than the S&P500. Interested to know what the authors say.

kmith said:pase0 said:small value stocks have a higher return (albeit at a higher risk) than your plain jane large cap (S&P500), ...
You can just own one of the fund of indexes or lifestyle funds and be done with it. However, you should expect lower returns at a similar amount of risk in doing so.
I don't understand.
Small caps have higher returm and higher risk.
Why would I get lower returns for the same risk if I went with S&P 500 index?
I guess S&P is not fully diversified?
We all know " High risks", "High rewards". But the risk here should not include the risk than can be reduced by diversification.
So if I can find an asset allocation that is more diversified than S&P 500. It is possible you may get lower returns for the same risk if you went with S&P 500 index. In another words, S&P 500 may not be fully diversified. I believe this maybe true becuase most of the S&P 500 index are large company. Another consideration is that S&P 500 index is the most popular index and the market may not so efficient.

ETFNerd, I'm not sure what you're advocating here? A diversified portfolio is going to have different asset classes, most likely including a couple different types of "index funds". Mine happens to have both index and actively managed funds. (I am embarassed to say I have yet to deal with ETFs!)

timetosave said:What it boils down to is the S&P500 index has outperformed other mutual funds 75% of the time.

we're not talking s&p500 vs. X, Y, or Z fund. we're talking s&p500 vs. a "diversified portfolio" (whatever that is ). *i* don't happen to know (i tend to believe a bit of international is good for the soul), found 2 different (contradicting) links quickly.

Dimensional Fund Advisors
Fidelity

Charts and numbers are of course always maliable. anyways, this is way OT so I apologize.

<edit>heh, also, sorry for interjecting myself into whatever conversation was going on here. "we" = me!</edit>

Hi johto,

I'm a fan of DFA, although I find them pricey being broker-sold. I do agree that there is a diversified portfolio with exposure to other asset classes like bonds, RE, "juiced" stocks like small cap value and foreign. It would be tough to market weight these sectors.

Finally, I do not believe that a market weighted portfolio of these assets would outperform the S&P500, if you weight it properly. You are taking more risk with the S&P500 being all in stocks. There are limits to the benefits of diversification.

FatWalrusMember said:Looks like too much work and held up money for a measly $100
To each his own, but the 4 in 1 combo does all of the diversification in one simple package.

We all know how much index funds are touted by the "experts", but I believe you get what you pay for. If what the gurus say is true, then why do thousands of actively managed funds still exist? Maybe their investors are simply being duped into falling for high-fee under performers? Everyone's heard that 80% of mutual funds don't beat the indices over time, but consider the 20% that do. There's virtually no index fund I know of that hasn't been trounced by an actively managed mutual fund. If their performance deteriorates, switch. Index funds are for snoozers.

dudetheobscure said:Index funds are for snoozers.
In my view, that's exactly right.
There is a spectrum of active management you can choose from.
Index funds and asset allocation are on the passive-investing end of the scale.
The next step is actively trading funds as you suggest.
A further step is actively trading individual stocks.
Time is money and the time spent in active management comes at a price.
I really don't know where along the spectrum is the right balance.

Anybody did similar deals in the past?
does Fidelity care if you withdraw funds from the account after you get the bonus?
does Fidelity care if you don't invest anything?

TIA for the info!

kmith said:dudetheobscure said:Index funds are for snoozers.
In my view, that's exactly right.
There is a spectrum of active management you can choose from.
Index funds and asset allocation are on the passive-investing end of the scale.
The next step is actively trading funds as you suggest.
A further step is actively trading individual stocks.
Time is money and the time spent in active management comes at a price.
I really don't know where along the spectrum is the right balance.

I get fed up with the "index fund" pablum being churned out by various "pop" advisor-columnists and mutual fund purveyors like Vanguard.