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Discussion Starter #1 (Edited)
Hi everyone!!

Reading a little bit about stocks and personal finance I found some important information that can be useful for beginners that want to start investing.

Many people want to make some extra income aside their job so they want to start investing in stocks, but most people don´t really want to take the time and patience to really study the market, tendencies, tools and any other information that you have to know before starting investing.

That´s why many people prefer to invest in a mutual funds in which a stock professional will charge you a fee for the service of investing your money for you.

The problem is that most mutual funds can´t really beat the market in a constant basis.
Mutual funds actually try to bet against the market and beat it trying to predict what the market will do in the future.

With Index funds we don´t have that problem because the index fund is actually a way to bet on growth and developtment of the companies within that specific index.

So with index funds you don´t have to beat the market to win, the goal of capitalism is always expansion and growth and you win when the companies grow.

Besides those: which do you think are the most important benefits of index funds compared to mutual funds for beginners?

What are your experiences investing in index funds?
 

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My .02

Index type ETFs are mainly what I own now. It is a good strategy to target momentum of the largest, generally lower risk companies in a region. The index is always rotating out mature, declining companies for newer, rising companies. The fees are much better as low as .05% vs 1+% for mutual funds.

This works for Intl and the US. CAN you have to look at the weightings as the TSX is 40% financial, 20% energy so you are better off in a more diversified ETF like the low volatility funds TLV, ZLB for ex. Lots of low risk utilities and consumer defensive weightings. Actually you may need to see what is in the etf at the time too. Sometimes a few stocks can be a large % of an index. Like some tech stocks (Facebook Amazon , Google Apple etc) now in the US

I just have ZLB, XMS and ZLD. Low vol cdn, US and Intl hedged,low risk,low beta and no worries.
 

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I'm an indexer as well, but I've warmed up to the idea of creating your own stock portfolio for Canadian exposure. The reason is (as Jimmy describes) the TSX sector weightings are very uneven.

It took me a while to warm up to the idea that "you can do better than indexing in Canada", and I'm still not 100% convinced, but I've seen enough evidence that it's worth trying. I also think it's perfectly acceptable to just index Canada and hold XIU or XIC long term.

Most of my Canadian stock exposure is in a sector-balanced stock portfolio. I look at the TSX 60 and take the largest weight stock in each of five sectors -- financial, energy, industrial, telecom, utility. So I'm still basing my portfolio entirely off the TSX 60 index, but with a more even sector allocation.

If you don't want to hold individual stocks, then ZLB and CDZ are two broad based ETFs that have reasonably good sector diversification. I like these ETFs not for the low volatility or dividend components, but because they hold diverse portfolios with relatively even sector weightings. (I can't hold either one due to US tax reasons, and that's another reason I'm individually owning stocks).
 

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Discussion Starter #4
I'm an indexer as well, but I've warmed up to the idea of creating your own stock portfolio for Canadian exposure. The reason is (as Jimmy describes) the TSX sector weightings are very uneven.
My .02

Index type ETFs are mainly what I own now. It is a good strategy to target momentum of the largest, generally lower risk companies in a region. The index is always rotating out mature, declining companies for newer, rising companies. The fees are much better as low as .05% vs 1+% for mutual funds.

Hey guys!! Thanks for sharing!!

Yeah! I agree with you about the lower risk involed in Index funds, also low fees compared to the hidden fees that mutual funds charge.

Less volatility and more stable dividends. I think beginners should start educating themselves more about indexing rather than trying to pick stocks on their own.

Question guys, what is your average ROI on indexing on a monthly and yearly basis??
 

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Hey guys!! Thanks for sharing!!

Yeah! I agree with you about the lower risk involed in Index funds, also low fees compared to the hidden fees that mutual funds charge.

Less volatility and more stable dividends. I think beginners should start educating themselves more about indexing rather than trying to pick stocks on their own.

Question guys, what is your average ROI on indexing on a monthly and yearly basis??

Hi,

Here is a site where you can plug in some assets and select the time horizon you want.

I looked at 2000-2015 before fees, for an = 25% wt in bonds, TSX 60, S&P 500, and EAFE : return was 5.2%

That included 2 recessions so maybe 6% is more reasonable

http://www.ndir.com/cgi-bin/downside_adv.cgi
 

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There are many people that are good enough at picking stocks to beat the market. The main issues are that to beat an ETF index with a mutual fund, you don't just have to pick stocks to beat the market you have to beat the market enough to make up the fund difference. If you're talking the difference between 2% and .15% that is significant.

Then the other factor is if you're running a mutual fund for a big institution, you can't just spread a bit of money around over a few stocks that you are very confident in. You have many millions or billions of dollars you have to allocate, and spending that kind of money, especially in a small market like Canada's, it gets really hard to end up not just being the index with slightly different allocations and a higher fee.
 

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Yeah, outperforming by enough to exceed fund fees seems to be the biggest problem. Still, there is the rare mutual fund out that has proved outperformance over a long enough time that it can't be an accident.

Take Beutel Goodman Small Cap for example. It has a high MER over 1% (plus front end fees unfortunately) and yet is showing long term performance as 10.78% annual over 15 years, far exceeding both the TSX, as well as small cap index funds (XCS). This performance takes into account MER, but does not consider front end load fee.
 

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Discussion Starter #8
Hi,

Here is a site where you can plug in some assets and select the time horizon you want.

I looked at 2000-2015 before fees, for an = 25% wt in bonds, TSX 60, S&P 500, and EAFE : return was 5.2%

That included 2 recessions so maybe 6% is more reasonable

http://www.ndir.com/cgi-bin/downside_adv.cgi

All right so we are talking about between 5.2% to 6% annual ROI? that seems to me that it is barely breaking even with inflation...
 

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Discussion Starter #9
Yeah, outperforming by enough to exceed fund fees seems to be the biggest problem. Still, there is the rare mutual fund out that has proved outperformance over a long enough time that it can't be an accident.

Take Beutel Goodman Small Cap for example. It has a high MER over 1% (plus front end fees unfortunately) and yet is showing long term performance as 10.78% annual over 15 years, far exceeding both the TSX, as well as small cap index funds (XCS). This performance takes into account MER, but does not consider front end load fee.
10.78% sounds better, the issue as you guys have said before is that many mutual funds have tons of hidden fees (front end and backend) so basically the main issue is to yet create a profit after paying all those fees.
 

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... many mutual funds have tons of hidden fees...
Hyperbole don't you think?
In general MF's don't have "tons of hidden fees", they have a mer that is higher than you pay owning an etf. Their challenge is outperforming sufficiently and over an extended period to make them worth risking your money with them instead of sticking with (nearly) market-matching etf's.

Yes, 10.78% sounds great, but you own a sector fund that has the risk of underperfroming as well.

You seemed to start off with the merits of a broad market etf portfolio that will (nearly) match the markets, but then you seem to think that a 6% or 7% nominal return is too low. Make sure you are not unrealistic in your expectation of returns. If the bulk of your investments are earning you 4% or 5% real returns over time - you could do worse. Once you have a larger portfolio and discretionary savings you can put maybe 10% or 15% into some higher risk/return sector funds or stocks.
 

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All right so we are talking about between 5.2% to 6% annual ROI? that seems to me that it is barely breaking even with inflation...
Interest rates and inflation have been non existent recently and after the recession in 2000 so it is more of a real return.

From 1990 - 2015 the return was 8% for the same portfolio. Going forward though, there are articles showing gdp growth will be 1.5%/yr vs 2-3% historically so 6-7% is realistic (~ 5-6 % real return)
 

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Discussion Starter #12
Hyperbole don't you think?
In general MF's don't have "tons of hidden fees", they have a mer that is higher than you pay owning an etf. Their challenge is outperforming sufficiently and over an extended period to make them worth risking your money with them instead of sticking with (nearly) market-matching etf's.

Yes, 10.78% sounds great, but you own a sector fund that has the risk of underperfroming as well.

You seemed to start off with the merits of a broad market etf portfolio that will (nearly) match the markets, but then you seem to think that a 6% or 7% nominal return is too low. Make sure you are not unrealistic in your expectation of returns. If the bulk of your investments are earning you 4% or 5% real returns over time - you could do worse. Once you have a larger portfolio and discretionary savings you can put maybe 10% or 15% into some higher risk/return sector funds or stocks.

Maybe hyperbole, as what I have read many mutual funds have more than 10 fees (I´ve read information on U.S mutual funds, I don´t know if Canadian MF´s have less fees maybe).

And yeah the situation with funds in general is that even though we are seeing an interesting 10.78% ROI we can indeed suffer a period in which it underperforms. When buying Index funds we should see a lower ROI but a steadier return over time right? I mean it is not that risky that it underperforms compared to MF´s?
 

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Discussion Starter #13
Interest rates and inflation have been non existent recently and after the recession in 2000 so it is more of a real return.

From 1990 - 2015 the return was 8% for the same portfolio. Going forward though, there are articles showing gdp growth will be 1.5%/yr vs 2-3% historically so 6-7% is realistic (~ 5-6 % real return)
6-7% realistic... Makes me wonder how somebody could really invest for 40 or more years to finally have $2 million invested at 6% yearly ROI ($ 120 000 a year to live with) besides the inflation of that year...
 

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... I have read many mutual funds have more than 10 fees (I´ve read information on U.S mutual funds, I don´t know if Canadian MF´s have less fees maybe). ... When buying Index funds we should see a lower ROI but a steadier return over time right? I mean it is not that risky that it underperforms compared to MF´s?
WTF? Ok, I get it now. Your signature, which you were so concerned about being able to post in your very first post, links to download a free financial education ebook. Go there? Not bloody likely.
You are nothing more than a financially ignorant spammer.
Please get lost at your earliest convenience..
 

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Discussion Starter #15
Listen let´s do something, if you don´t want to go there then don´t.
I´ve helped many people because thank God I am not an ignorant as you say so if you don´t want to go there then don´t not an issue for me. ;)
Besides if you would like to know where did I read the MFs information you can buy the eBook: Money Master the game (Tony Robbins is the author) and maybe after reading the complete 500 pages book you won´t say WTF.
Meanwhile thanks for helping in the topic.
 

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6-7% realistic... Makes me wonder how somebody could really invest for 40 or more years to finally have $2 million invested at 6% yearly ROI ($ 120 000 a year to live with) besides the inflation of that year...
If you make $50K and put away 20% - $10,000/yr - for 40 yrs at 7% you will have $2M. it is easily obtainable
 

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Discussion Starter #17
If you make $50K and put away 20% - $10,000/yr - for 40 yrs at 7% you will have $2M. it is easily obtainable
Yeah, the difficult part is having the discipline and perseverance to really save 20% of your income each year and really have the patience in invest it and compound it over time.
 

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24 making 45k/year, have about 30k saved up, read through CouchPotato then proceeded to get a Tangerine tax free investment account (chose balanced income portfolio as per recommendation for my income/net worth or lack there of) which I invested 20k as well as automatic contribution of $50/month, to start. I'm happy if it at least keeps up with inflation. It's going to be parked for a long time anyway and I won't be needing it as I don't plan on any big purchases for at least 10 years. Before this, all it was doing was sitting in my Tangerine TFSA with the 6 month 2.4% promo, which is now up. Figure I can put 10k/year easily in this thing, plus the measly 50/month contributions I set up which I can always adjust how much.

Is this a good starting point? Next step is increasing my income via better job = save more = able to invest more/in other things to diversify, all the while continually learning about this stuff.
 

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... you can buy the eBook: Money Master the game (Tony Robbins is the author)...
Oh great, another ebook. I think you might have a spending problem.
But I'll bet your signature link is how you plan to get other people's money working for you. Pure genius.

Let's read this review: http://www.marketwatch.com/story/tony-robbins-doesnt-quite-master-the-game-of-money-in-his-new-book-2014-11-25

And since we're in a thread discussing the importance of low fees, let's see what dear Tony has to say:
He regularly demonizes high fees, but goes on to recommend working with firms like Lifetime Income and Stronghold Financial. I called Lifetime Income to inquire about its products, and someone referred me to a California partner, who informed me that the fee structure starts at 1.5% and is often higher
... stresses the importance of becoming an “insider” and steers the reader toward many of his own companies or companies he’s partnered with
...stresses the importance of using passive index funds, but also explains the importance of asymmetric returns and active strategies. He interviews supposed “insiders” who have totally contradictory approaches (stock traders, activists and indexers), while putting many high-fee hedge fund managers on a pedestal. He even cites his own market-timing calls over the years as if that adds any value to the text without mentioning that he has made some horrible stock market calls
...Robbins promotes structured notes, annuities and market-linked CDs throughout the book, stressing “guarantees” in the products.


I'm afraid it's too painful to quote the review any further. It would be financial suicide to read the book and make decisions based on what dear Tony has to say.

In short, we're left with another big WTF?
 

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24 making 45k/year, have about 30k saved up, read through CouchPotato then proceeded to get a Tangerine tax free investment account (chose balanced income portfolio as per recommendation for my income/net worth or lack there of) which I invested 20k as well as automatic contribution of $50/month, to start. I'm happy if it at least keeps up with inflation. It's going to be parked for a long time anyway and I won't be needing it as I don't plan on any big purchases for at least 10 years. Before this, all it was doing was sitting in my Tangerine TFSA with the 6 month 2.4% promo, which is now up. Figure I can put 10k/year easily in this thing, plus the measly 50/month contributions I set up which I can always adjust how much.

Is this a good starting point? Next step is increasing my income via better job = save more = able to invest more/in other things to diversify, all the while continually learning about this stuff.
Yes. Set up some auto deposit of 20% of your income into the TFSA and the RRSP and that is most of your money and planning issues solved.
 
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