The three elements of money mastery

[RetireJapan]

Don't worry, I still think the service is great and it's by far the best robo I know of in Japan. I also am not planning to change my own holdings or monthly contributions. I do think the fees are more of a problem than I used to think they were. More details in the blog post (in about a month or so).

[N00bster]

This is going to be an interesting post.

1% fee is certainly not cheap (well it's way cheaper than many other, more "active" alternatives where you are not in charge), and I have also been thinking about whether I could not simply buy the funds myself. But then there is the diversity that I probably could not achieve on my own, the rebalancing and tax-loss harvesting that would take time, and the "what do I do when things go south" which I expect them to manage better than I would.

All in all I guess it depends on how much of your time you are willing to invest to manage your own portfolio. With Theo you just have to think about sending money once in a while, and that's what you are paying for.

[Roman Empire]

To a certain extent, active fund performance is random, and survivorship bias makes it difficult to evaluate them (put simply, firms will start ten funds, and then close the seven that underperform and keep the ones that do well).

Additionally complicating things, successful active funds suffer from their own success: it's much harder to deploy large amounts of money as effectively as small amounts, so the more successful a fund is, the more money comes in as investors want to invest in it, and the less likely the fund will be able to be as effective in the future.

However, almost everyone who doesn't have a conflict of interest, from Warren Buffett to Andrew Hallam to Burton Malkiel, says the same thing: most people should worry about their portfolio allocation and the fees they pay, and invest in index funds.

The main problem with the quotes is that they are mostly about the United States.

Most forum users probably keep their exposure to Japanese stocks limited to 10 per cent or 20 per cent of their total portfolio because their long-term outlook of the Japanese market is negative. If that is the case it seems risky to allocate such a big share of the portfolio to a passive fund following a broad index such as the Nikkei 225 or TOPIX.

There are active funds in Japan that do not meet the generalisations outlined by RetireJapan.

One example is an active stock fund that has been managed by the same manager since it was launched in 2003. It has been closed for new subscriptions since the middle of the year because of high demand from investors. The company has set a cap on the size of the fund because they know deploying too large amounts of money could distort the market and be bad for the performance of the fund. It has delivered a return of 449.9 per cent between its launch date in 2003 and the end of October 2016 compared to a return of 76.6 per cent for the Nikkei 225.

[N00bster]

One example is an active stock fund that has been managed by the same manager since it was launched in 2003. It has been closed for new subscriptions since the middle of the year because of high demand from investors. The company has set a cap on the size of the fund because they know deploying too large amounts of money could distort the market and be bad for the performance of the fund. It has delivered a return of 449.9 per cent between its launch date in 2003 and the end of October 2016 compared to a return of 76.6 per cent for the Nikkei 225.

Care to name that fund so people can look at the data by themselves?

[RetireJapan]

One example is an active stock fund that has been managed by the same manager since it was launched in 2003. It has been closed for new subscriptions since the middle of the year because of high demand from investors. The company has set a cap on the size of the fund because they know deploying too large amounts of money could distort the market and be bad for the performance of the fund. It has delivered a return of 449.9 per cent between its launch date in 2003 and the end of October 2016 compared to a return of 76.6 per cent for the Nikkei 225.

I don't know if this proves anything. Yes, people who invested in this particular fund (instead of the hundreds of others available at the time) in 2003 have done well. However, there is no guarantee it will continue outperforming. It could go into terminal decline tomorrow. We don't know.

How has the fund done over the last year? The Nikkai is up over 15% YTD.

None of which changes the fact that we each have to decide how to invest. I personally am not interested enough to research funds, and do not believe I have any kind of skill or insight that will allow me to do so better than others. For me, sticking to indexes makes sense.

It also seems to be the consensus among people far brighter than I, which is why I recommend it to others.

But if you think you will do better investing in active funds you should probably pursue that. As long as you reach your goals, you win. Personal finance is not a competition, thankfully

[Roman Empire]

Care to name that fund so people can look at the data by themselves?

The point I wanted to make is larger than the fund itself so I do not want to disclose the name of the fund or the asset management company now -- sorry.

A good suggestion for finding active funds that have performed well is by going over the fund rankings of SBI Securities or Rakuten Securities and using the filtering tools they provide.

How has the fund done over the last year? The Nikkei is up over 15% YTD.

The fund of my example is up more than 30 per cent this year compared to about 18 per cent for the Nikkei. Not bad, right? Too bad I discovered it after it was closed for new subscriptions.

As long as you reach your goals, you win. Personal finance is not a competition, thankfully

Agree with that.

Vanguard Group has nearly $5 trillion in assets, including more than $1 trillion in active funds. The active funds have outperformed their benchmarks by about 80 basis points over 10 years, according to an interview with their new CEO.

Vanguard's average active fund expense ratio is 0.2 per cent, according to information on their website, although the CEO does warn of returns disappearing to fees in the interview.

http://www.philly.com/philly/blogs/inq- ... DLxQ%3D%3D

There's a danger of throwing the baby out with the bathwater if you ignore active funds out of principle.

[N00bster]

Care to name that fund so people can look at the data by themselves?

The point I wanted to make is larger than the fund itself so I do not want to disclose the name of the fund or the asset management company now -- sorry.

A good suggestion for finding active funds that have performed well is by going over the fund rankings of SBI Securities or Rakuten Securities and using the filtering tools they provide.

As you wish, although I don't see what is wrong with naming particular funds here. Citing isn't equal to endorsing.

I think the reason why your topic received a cold welcome is because you basically have been making statements about active funds without providing evidence to support them. Anyone can do the same about any topic, and in a domain as prone to deception as personal finance, verifiable data is always welcome.

Vanguard Group has nearly $5 trillion in assets, including more than $1 trillion in active funds. The active funds have outperformed their benchmarks by about 80 basis points over 10 years, according to an interview with their new CEO.

He does warn of returns disappearing to fees.

http://www.philly.com/philly/blogs/inq- ... DLxQ%3D%3D

There still is a danger of throwing the baby out with the bathwater if you ignore active funds out of principle.

... and that's what I was talking about. Looks like an insightful interview, will take a good look.

Speaking of active assets, one that I have been considering acquiring for a while is Berkshire Hathaway, Warren Buffett's company. Not a fund per-se, but pretty close in the idea. It seems to be managed very responsibly and to actually outperform the S&P on a regular basis.

http://www.businessinsider.com/warren-b ... 500-2017-5

But of course, you know this is no silver bullet when you see Warren Buffett himself suggesting that index funds may be a better strategy for retirement:

https://www.marketwatch.com/story/heres ... 2017-05-06
https://www.cnbc.com/2017/05/12/warren- ... -time.html

Although if you read between the line, you see that his advice is targeted at people who don't want to worry about their investments.

[Neil]

I'm starting to feel like we're being trolled.

Absolutely no offence intended, but from what I can see, the Boglehead universe is a collection of likeminded individuals pursuing a single philosophy. RJ, on the other hand, is a place for questioning and answering questions related to the entire retirement scene. Therefore, I hope the sounding out of ideas is not going to be considered trolling because it seems to question imagined site-wide truths (aka fan club).

[RetireJapan]

Absolutely no offense intended, but from what I can see, the Boglehead universe is a collection of likeminded individuals pursuing a single philosophy. RJ, on the other hand, is a place for questioning and answering questions related to the entire retirement scene. Therefore, I hope the sounding out of ideas is not going to be considered trolling because it seems to question imagined site-wide truths (aka fan club).

That's a good point, and I have enjoyed this thread as it made me think a bit. As long as people are being polite and constructive, I say the more ideas the better...

[Jamo]

Absolutely no offense intended, but from what I can see, the Boglehead universe is a collection of likeminded individuals pursuing a single philosophy. RJ, on the other hand, is a place for questioning and answering questions related to the entire retirement scene. Therefore, I hope the sounding out of ideas is not going to be considered trolling because it seems to question imagined site-wide truths (aka fan club).

I too totally support the sounding out of ideas and constructive discussion, etc. Perhaps trolling wasn't the most appropriate term to use and I apologise for any offence caused. But if you're going to make some unusual statements (e.g. "Buying only passive index funds seems risky. It is not a safe approach to investing.") without some logical reasoning, it's bound to be met with skepticism.