I wanted to see what your thoughts were on VTI, and if you think that it might be a better investment than SPY?

Let’s stop the sugar coating. I worked for a wirehouse for years. Assets are gathered to generate fees for company performance. No fee products can do just as well as fee based. Tax deferred will save you a ton if your Long term estate planning strategy is really good.

The most return you will ever see is investing in your own recession proof business (healthcare industry) that you control the expenses.
If you don’t have the time or the expertise then you are left to the mercy of investment vehicles in the gambling world called the Markets.

There is no free lunch!!

jay

I don’t think you read my post. As your comment made no sense.

To recap, my post said IF you decide to buy equities (In no way did it recommend buying stocks) that the best option was to buy SPY and NOT individual stocks (like GM! or C!) or mutual funds.

I stand by SPY, even in a down market, has outperformed 80% of the managed funds out there.

My current strategy is to sell at the money covered calls each month. It pays 8% monthly. Obviously there is more to it than that, but that would require another post.

Believe it or not, I actually do believe in using actively managed funds. I just feel like your approach is wrong. If you go in bragging about beating the market you are setting unrealistic expectations with the client and you are setting yourself up for failure. A good financial planner is going to focus on the things that they truly can control: setting up a well balanced and diversified portfolio that is in alignment with the clients risk tolerance and goals, implementing a good tax strategy, reviewing the client’s estate plan and insurance coverage, and when it comes to investing the biggest value an advisor provides is saving clients from making classic mistakes (chasing returns/hot investment ideas and panicking and selling near market bottoms). I can’t tell you how many times I have had clients ask about investing in commodities this year, just like they were asking me about dot-com stocks and tech funds in ‘99.

I guess this is just more of a philisophical difference between a financial planner and a broker/money manager. The problem I think is that a lot of the time the public does not know the difference or understand what it is that both types of professionals can and can’t do for them.

It wasn’t Markowitz that did the study. You are referring to a study by Brinson, Hood, Beebower published in 1986 with follow on studies by Ibbotson. The study is controversial at best and is weighted way too heavily by financial advisors. Do a little research on the paper and I think you will agree.

To everyone – pick up a copy of David Swensen’s “Unconventional Success”. He runs the Yale pension fund and has outperformed the market year after year after year. He will shred the mutual fund industry, give you a good indexing model and some foundation on the markets and how to invest with a little wisdom and prudence.

Frank – yes, the model that you refer to where financial advisors are paid by mutual fund companies is severely flawed in that advisors’ interest are not aligned with you the client. They are tempted to front the highest paying mutual funds and not necessarily the best ones for the client. The industry is moving away from this and towards, albeit slowly, a model where the advisor is paid solely by the client.

The challenge in this model is to find an advisor that does his/her homework well enough and has a deep/broad enough understanding of economics, markets, and finance to construct a portfolio that can outperform a simple indexed portfolio. And it has to outperform at least by the 1% – 2% fee that you pay the advisor. Is this possible? Yes. However, you have to really do your homework in finding the right advisor and the good ones have minimums, typically 500K to 1 million.

David Swensen recommends that individuals index. Warren Buffett recommends the same thing. So does Malkeil as mentioned in an earlier post.

If you are going to do it yourself and you don’t want to invest a lot of time then use the indexing models that Swensen or Malkeil recommends.

I manage client’s portfolios with discretion using a globally diversified allocation model that I manage. I buy/sell stocks and some ETFs directly in clients, by block trading accounts, very different from mutual funds. There’s no transaction costs , redemption fees, or entry fees. Just one annual management fee. I leverage teams of analysts to vet the investments and I use economists to help determine where around the globe to invest. It’s a very complex actively managed model. Do I outperform SPY? Yes. So far this year my strategy is down about ½ the market, net of fees, and last year it outperformed the market by a good margin. Is it hard to do? Absolutely. Can I consistently do it? I think so. As soon as I don’t rest assured I will move to an indexing model and look for a new career, maybe real estate.

First, like you said, the rest of the world does not operate the same as the US. While most places are a lot ‘worse’, some stock exchanges (like the London Stock Exchange) are actually pulling ahead in terms of technology and fiscal accountability requirements. The rest of Europe is also finally modernizing their exchanges away from being an old boys club.

I also believe that countries like India (and perhaps Brazil) will eventually wind up being economic power houses.

Your comment on Mexico is very apt: if you put all your eggs in one basket, look out. The value of the US dollar has plunged in the last 5 years, meaning my US investments have really (at best) treaded water in international terms. Meanwhile, I have about a 50% ROI over the last few years on the Canadian dollars and Euros I have left over from trips sitting in a shoe box. (Also, none of the international funds would invest solely in one economy, so that risk to an index fund would be minimal).

Like you said before, past performance is not necessarily the best indicator of future performance. I just don’t think that the next 40 years can possibly mirror the last 50 years: how much farther can the US pull ahead? Surely other countries economies can and will at least grow faster (if not catch up).

I think the financial advisor guy explained why you might want to invest in small / mid-cap indexes better than I could.

Anyways, if you’re comfortable with the international exposure in the S&P, I’d definately say stick with it. After the much larger expense ratios of an international fund, you certainly may be right.