tag:blogger.com,1999:blog-6533494677366906459.post1538418576756362995..comments2023-05-14T13:16:00.415+01:00Comments on DIY Income Investor : Don't Buy the S&P500!Sisyphushttp://www.blogger.com/profile/11345967558482194349noreply@blogger.comBlogger2125tag:blogger.com,1999:blog-6533494677366906459.post-33979521363679191982013-04-13T09:54:41.074+01:002013-04-13T09:54:41.074+01:00Hmm, I'd say the purpose of index investing is...Hmm, I'd say the purpose of index investing is to achieve the greatest *and most likely* return possible.<br /><br />Passive investors don't do it as a matter of philosophy, they do it because it gives them the greatest chance of achieving their goals. Active funds and stock pickers tend to under-perform tracker funds and passive strategies, on average (overwhelmingly so over the longer-term).<br /><br />I take your point, and it's an interesting one, but in the light of the above I think Mom and Pop could do just as well being passive and oblivious with an equal weighted fund, no?Monevatorhttp://monevator.comnoreply@blogger.comtag:blogger.com,1999:blog-6533494677366906459.post-27941518275638290622013-04-06T21:50:54.466+01:002013-04-06T21:50:54.466+01:00Interesting article!
Personally I would have to t...Interesting article!<br /><br />Personally I would have to take issue with the kind of logic used in the academic paper - unless the complaint is that the funds themselves have failed to reflect the real S&P/FTSE performance.<br /><br />As best as I understand it, the point of the simple "index buy-and-hold" strategy is that it is representative, roughly, of the growth in wealth of the average large-cap corporation. Beating the market with random-weighting strategies is not the aim - whether weightings are selected randomly, on an equal-weight basis or any other method, superior returns are not the goal.<br /><br />Placing greater importance on the largest of corporations makes sense in providing a "representative" return, and I think it's roughly adequate for that job. Owning £1k of the largest company and £1k of the smallest company may be something the individual investor finds to be a better representation - but the object is somewhat being defeated by chasing superior returns.<br /><br />Afterall, if the individual passive Mom n Pop is supposed to demonstrate judgement on Equal Weight vs Normal Weight, they're effectively already entering into stock picking. They're being asked "Do you want £30k Apple and £1k XYZ, or £1k Apple £1k XYZ?".<br /><br />If the purpose is to be passive, to avoid individual judgement, and to achieve roughly "representative" returns, in my view it is simplest to just stick to the standard index. "What's working now" shouldn't be a concern.<br /><br />All just my view of course, I suppose it is a matter of preference really!Big Macro Picturehttps://www.blogger.com/profile/13969338909454540293noreply@blogger.com