Index funds/ETFs - Questions

[knownothing]

im sure this has been answered, but my reasonable but not overly exhaustive search could not find the answer...
SO...
ive been on the sidelines for too long and finally went and put money into some of the common vanguard etfs...after doing so, i realized: Should I be putting money into u.s. stocks that are affected by currency changes...what do i need to know?

2) i plan to start couch potato investing on a monthly basis...what is the cheapest way to avoid commisions ? i currently have a q trade acct with less than 100k. should i look at index funds??

thanks

[Norbert Schlenker]

im sure this has been answered, but my reasonable but not overly exhaustive search could not find the answer...
SO...
ive been on the sidelines for too long and finally went and put money into some of the common vanguard etfs...after doing so, i realized: Should I be putting money into u.s. stocks that are affected by currency changes...what do i need to know?

If you're worried about currency risk, you can avoid some of the FX fluctuation by using a fund that hedges. Be aware that the hedges are not perfect, not even close to perfect.

2) i plan to start couch potato investing on a monthly basis...what is the cheapest way to avoid commisions ? i currently have a q trade acct with less than 100k. should i look at index funds??

If the monthly addition is relatively small, you want to stick with index funds rather than use ETFs. The existing balance might be invested in ETFs because they usually have lower MERs, but ETFs are usually a mistake on small additions because of additions.

What index funds might work for you depends on what qtrade has to offer. You'll have to scout through their offerings. A common recommendation - TD efunds because they have really low MERs - is likely not available.

[Raul]

My portfolio (non-RRSP) is mostly comprised of ETFs. For the Canadian equity portion, I have XIU.

I'm getting rid of my remaining mutual funds. About 50% of these funds are invested in financials. I'm thinking of replacing them with XDV which is >70% in financials. XIU has 33% in financials.

Question: Does it make sense to hold both XDV and XIU? They both hold the same securities.

[parvus]

Depends, I suppose, on what you're looking for: dividends (and reinvested dividends) or capital gains. There are threads here on dividend investing. Try a search.

As against that, in a commodity bull cycle, capital gains might be more attractive — and these days, the Canadian marketplace is way overweight commodities.

Making a case for Canada and commodities

Not surprisingly, the last secular bear market in equities, from the mid-1960s to the early 1980s, also took hold alongside a secular bull market in commodities; we are seeing something very similar take hold this time around but for very different reasons.

What really caught my eye this time was that during the vicious selloff in commodities last year, the price of virtually every commodity bottomed at a higher price than during any other recession in the past.

[Taggart]

Forbes Magazine dated December 14, 2009

Do It Yourself Investing

Mitchell Tuchman has credentials that would open almost any door on Wall Street. Armed with a Harvard M.B.A., he spent seven years analyzing tech stocks for a hedge fund. Despite the pedigree and smarts he brought to the table, Tuchman came away convinced it's a sucker's game to try to beat the market. But plenty of financial planners and money managers rake off big fees just for trying.

"The fees that fund companies and wealth managers charge create inherent conflicts of interest," Tuchman says. "It's like cigarette makers in the 1930s trying to convince people that smoking was healthy."

[Bylo Selhi]

OTOH, $100K dare for Bogle

The gauntlet was thrown down by active money manager Roger Schreiner, chief executive of Schreiner Capital Management Inc., who wants to take on the longtime critic of market-timing strategies in a money management competition...

According to the terms of the bet Mr. Schreiner is proposing, he would put up $100,000 against a matching amount from Mr. Bogle. The bet is that Mr. Schreiner can outperform through active management any portfolio Mr. Bogle is willing to hold passively. The time period can be set by Mr. Bogle, as long as it is at least one year.

During the contest period, no management fees would be charged against Mr. Bogle's portfolio, but Mr. Schreiner would deduct a 2% annual management fee, in addition to all transaction costs.

The winning portfolio must have both higher return and lower risk, based on total return and standard-deviation calculations...

“Whenever I hear somebody bash market timing, I send them a copy of the Bogle challenge,” he said. “So far I've done that about 20 times, and I've never gotten a response yet.”

[randomwalker]

OTOH, $100K dare for Bogle

The gauntlet was thrown down by active money manager Roger Schreiner, chief executive of Schreiner Capital Management Inc., who wants to take on the longtime critic of market-timing strategies in a money management competition...

According to the terms of the bet Mr. Schreiner is proposing, he would put up $100,000 against a matching amount from Mr. Bogle. The bet is that Mr. Schreiner can outperform through active management any portfolio Mr. Bogle is willing to hold passively. The time period can be set by Mr. Bogle, as long as it is at least one year...

We know the longer the time period the less likely an "active" manager will out perform their particular benchmark so I should think Mr Bogle would opt for a ten, fifteen or twenty year challange. It is Mr Schreiner's intent to play within the universe established by Mr Bogle's passive portfolio.

"The Portfolio: Mr. Bogle is free to construct his own portfolio using the index funds of his choice. I will create an exact replica of Mr. Bogle’s holdings for my portfolio. During the contest, Mr. Bogle must passively hold the assets in his portfolio and, in my portfolio, I will limit myself to trading the same assets. As an active manager, I will be able to use cash in my portfolio to help control risk."

http://seekingalpha.com/user/282438/comments

While Mr Bogle advocates investors hold as broad an index as possible a "total market" approach I can't help wonder if for such a challange as Mr Schreiner's limiting the universe of stocks in the passive portfolio and thus opportunities for the "active" challanger might be the way to go. ie for example Mr Bogle chooses to passively hold the 30 stock that make up the DJIA.

[Flights of Fancy]

Meh. Milevsky has had something to say about this in the past.

[Bylo Selhi]

We know the longer the time period the less likely an "active" manager will out perform their particular benchmark so I should think Mr Bogle would opt for a ten, fifteen or twenty year challange.

I agree, however, Bogle is now 80 and some 14 years into a new heart so he's unlikely to be around to savour the win. Still, by calling for a 2 decade (or even longer) contest he'd make Schreiner work really hard for his money. This is not only because it's tough to beat an index by 2% but to do so for so long a time seems almost impossible (unless your name is Warren and you hail from Omaha.) Moreover, it forces Schreiner to play the game that long whether he wants to or not (That said, I doubt Bogle would be mean enough to set the bar quite that high.)

[ockham]

What thesis would this "dare" corroborate or refute? If Bogle wins, those inclined to active management will pore over the entrails to identify the transactions which proved Schreiner's undoing; if Schreiner wins, the indexers will turn to discussions of randomness, statistical outliers, and the unpredictability of improbable outcomes. No wonder no one has bothered to take up Schreiner's offer.

[Taggart]

From the archives - year 2000.

Vanguard-vs.-Markman bet shows how tough fund timing can be

June 25, 2000|By Charles Jaffe

The recent resolution of a simple 5-year-old bet shows why fund investors often have such a hard time deciding the "right" thing to do when it comes to choosing funds.

In 1995, Vanguard Group founder Jack Bogle and Bob Markman, head of the Markman MultiFunds, made the classic passive vs. active management wager. They bet $25 that their chosen fund - the Vanguard Index 500 or the Markman Moderate Allocation fund - would come out ahead in five years, winner take all.