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Comment by MrMember | Hacker News Reader

The average person is much better off putting their money in a whole market index fund that charges a tenth of a percent (or less) rather than a managed fund that charges 1%. The managed fund is unlikely to outperform the index fund in the long term.

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I would go beyond that and say that the average person should use those retirement date targeted funds. Those are usually cheap and minimize risk towards your retirement date.

There can be several large issues with target date funds.

1. Ignores income streams from things like social security, reverse mortgages, held away assets

2. Ignorant to future medical advances that could change life expectancy

3. Built on past assumptions of bond yields and interest rate levels

4. higher fees than an equity ETF

5. large discrepancies between each one

6. Bonds are not necessarily less risky than stocks. As yields drop, bond convexity is high, meaning the bond price will be very sensitive to interest rate changes

Not sure why you're being downvoted. None of these assertions are wrong.

I have many family members who still have big company pensions from back in the day and also own target date funds in their 401ks so combined with social security income they end up being massively over-allocated to bonds (a pension & SS can be treated as bonds).

While that is what I have mostly done, the retirement date funds I have had access to tend to have significantly hire fees (sometimes close to double) compared to the index funds. Not sure their performance actually justifies it either.

Is this through a 401k or through individual IRA/investments accounts? If the latter, I'd suggest moving to a provider such as Vanguard, with very low expense ratios [1]. If through your 401k, I would suggest encouraging your employer to seek out options where you're not overcharged (preferably as a group of employees, as there is strength in numbers). Failing that, max out your 401k with just enough funds to obtain the full employer match, then fill your IRA(s), and then your taxable accounts.

[1] https://investor.vanguard.com/mutual-funds/profile/VTIVX (example fund, Vanguard Target Date 2045 fund, 0.15% expense ratio)

Even the Vanguard retirement funds though have expense rations that are multiples of the underlying funds, assuming you have enough cash to qualify for admiral shares of the underlying funds. But you get automatic rebalancing and lower minimums. 0.15% is low enough though that I don't personally worry about the difference that I'm not saving by switching to manually investing in the underlying funds.

Employer 401k, I think my current one is 0.39% for target 2055. I hate it, but doesn't seem to be interest in changing. I think I will push for it again soon though.

I disagree. It's very unclear what strategy will work over the next 20 years. Many people are bullish on index funds because research has shown that they outperformed managed funds over the past 10-20 years. It doesn't mean they'll outperform over the next 20 years. Past results are no indication of future results.

> Many people are bullish on index funds because research has shown that they outperformed managed funds over the past 10-20 years.

According to John Bogle, this has been true for over 100 years. His analysis goes back to 1900.

You can't backtest a fund such as VTI. The issue is that these analysis don't take into factors such as volume. I'm sure if someone backtested $100MM investment in Bitcoin starting from 2010, the results would be spectacular, but we all know that buying pressure would've caused Bitcoin to skyrocket and the returns would be less than the backtested results.

I personally tell people to invest in index funds if they don't understand investing, but it doesn't mean it will do better than other options. Index funds are only a recent phenomenon.

The biggest issue with index funds at the moment is "group-think". If everyone in America is investing via index funds then when people need money, those same index funds will fall sharply. There is a valid line of thinking where one should avoid stocks with heavy exposure to index funds because those stocks will have the best returns during an equities downturn.

http://theirrelevantinvestor.com/2017/08/31/today-in-market-...

You absolutely can backtest VTI. We have reliable historical market data of the total US stock market (what VTI is) going back to the late-1800s.

Also, please tell me 1 of those better options?

The link you posted seems to take the opposite view from what you expressed. Batnick is very pro index funds.

Unless you have some kind of special insight, why would you not just go with the flows of the overall market and invest in index funds? Seems like a good default when all options are technically unknown.

i second this opinion. past results are not indicative of future ones.

The question is if you dont follow the passive ETF/index strategy what do you do? In that regard i suppose its better than doing nothing.

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