Fifth Year - Edward Jones
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I gotta go to work for Ed, those guys never fail to amuse me. I thought I could wear a UPS uniform when I did my door-knocking, see how that goes over.
Did you just say index funds - are you really a “wealth manager”? I’m no fan of Jones, but don’t pretend you are some great wealth manager by pushing index funds.
As for training - I agree with you. But I don’t think you are thinking “outside of the box” with index funds.
Why not sell actual products that actually produce results? Wait, those are called index funds, and EDJ brokers would never advocate those because they do not pay commissions.
Index funds "actually produce results?" Really?! How about the grandaddy of all index funds.
(per morningstar 1-31-2009)
Vanguard 500 Index Admiral
Total Returns
1 yr: -38.58 3 yr: -11.78 5 yr: -4.26 10 yr: -2.67
Rank: 47 38 44 53
Over the last decade VFIAX has been essentially at the 50 percentile. It's beaten half of the funds in its category and lost to half.
After the extensive "peeling back of the layers" that you apparently do. I am in complete agreement with you and will now completely switch to no load index funds. They are without a doubt the best option available for everyone in every circumstnace. Thank you, my friend, for showing the light.
I love to hear you geniuses out there (with the exception of ice) spout off in a time like this about your index funds. Before you come to a group of advisors and tell them they’re not thinking outside the box by selling mutual funds, you might want to consider the evidence of your claims. I could have beaten the majority of the major indexes out there with one symbol. AIVSX. And I don’t really like that fund.
Anyway, on to other misconceptions you have. First, that Jones folks don't use indexes. I do. With certain clients. My analytical types (like ice) tend to like the concept of pure asset allocation inside a fee based relationship. I know of quite a few others that think the same way I do. Now, I will give you that most of us use traditional inside the box mutual funds more than indexes. Funds like CWGIX, ITHAX, HFMCX, and others lead me to believe that there are some money managers out there than have and will continue to put a process in place to outperform the indexes over the long run. Are there some that haven't and won't. Yep. If one of the funds I am currently using turns into one of those, I'm certainly going to find a different money manager. That's why my clients work with me. And from a long term cost perspective, I'll still be cheaper than your wrapped index portfolio will be. Now, you can argue internal trading costs all day long, but the client never sees them. So, they're kind of a moot point. BTW, if I wanted to do indexes outside of a fee based account, I can buy ETFs all day long. AND I GET PAID ON THEM! Are you suprised? Or just stupid?The other thing that some people miss is that a lot of the “go anywhere” funds, or “Global Allocation” funds (i.e. Capital Income Builder, First Eagle Global, Blackrock Global, Ivy Asset Strategy, etc.) are not built to compete against any index in particular. They beat the indexes that Morningstar compares them to, but to be fair, those are not even relevant. The best you can do is to compare them to their peers, possibly “World Allocation” funds. But even that is not a good comparison, because they all use different strategies.
Basically, these funds will underperform indexes in good equity years, and outperform in bad equity years. But over time, the COMPOUND returns (that is, not the mean of the annual returns) will outperform most of the relative indexes. This is basically because these type of funds protect more of the downside than index funds do (for obvious reasons), so they don't need the outrageous returns in the "rebound" years to outperform. HOWEVER, if you are good at asset allocation, and know which indexes to be in, and when to get in and out, there is nothing wrong with using indexes. But if you just pick a few index funds and leave them there, you are probably in for some hurt in years like we just had. I just prefer to have good managers decide where/when the best opportunities are. This is where I dislike the "minimalist" approach that says "buy Vanguard Total Stock market, Vanguard Total Bond Market, and Vanguard International whatever index and leave them alone forever". You end up getting crushed in bad years, and won't make up for it enough in good years. And an extra 1% in fees or expenses isn't going to make a difference when you are down 45%, and the actively managed portfolio I use is down 25-30%. I use very few "pure" style funds (except small cap and certain bond funds).I think B24 brings up a good point in regards to comparison vs an index… and also does it really matter when you are down 20-50%…not really… I love the new guys hindsight 20/20 pitch… that will work real well until the next market that is different…
I don't think clients really care about beating the index(unless that was your pitch) as long as you are decreasing their risk and allowing them to enjoy the lifestyle that they want.. I used to run an office with a broker who sold on "I can triple your money in 10 years.. but he used every high risk fund there was... wish I cared enough to call him and see how he is doing now... CGM, Fidelity Latin America... You name the high flying fund of late and he had it... I think clients who have a decent portfolio are looking for less volatility less risk and a decent return(not market shattering)... I am not sure what is better active vs index.. index vs quant funds... etc... So i pick the ones I like from each and create a nice little portfolio... A couple active managed funds.. and etf index strategy(run by someone else who has the time to move the assets around) a couple of uits, some alternative stuff.. and that's the ball game...[quote=B24]The other thing that some people miss is that a lot of the “go anywhere” funds, or “Global Allocation” funds (i.e. Capital Income Builder, First Eagle Global, Blackrock Global, Ivy Asset Strategy, etc.) are not built to compete against any index in particular. They beat the indexes that Morningstar compares them to, but to be fair, those are not even relevant. The best you can do is to compare them to their peers, possibly “World Allocation” funds. But even that is not a good comparison, because they all use different strategies.
Basically, these funds will underperform indexes in good equity years, and outperform in bad equity years. But over time, the COMPOUND returns (that is, not the mean of the annual returns) will outperform most of the relative indexes. This is basically because these type of funds protect more of the downside than index funds do (for obvious reasons), so they don't need the outrageous returns in the "rebound" years to outperform. HOWEVER, if you are good at asset allocation, and know which indexes to be in, and when to get in and out, there is nothing wrong with using indexes. But if you just pick a few index funds and leave them there, you are probably in for some hurt in years like we just had. I just prefer to have good managers decide where/when the best opportunities are. This is where I dislike the "minimalist" approach that says "buy Vanguard Total Stock market, Vanguard Total Bond Market, and Vanguard International whatever index and leave them alone forever". You end up getting crushed in bad years, and won't make up for it enough in good years. And an extra 1% in fees or expenses isn't going to make a difference when you are down 45%, and the actively managed portfolio I use is down 25-30%. I use very few "pure" style funds (except small cap and certain bond funds).[/quote] B24, Not sure using Cap Inc Bldr in the current bear market is the best one to make your case. Now if it was 2003 and you were showing the past performance maybe. I'm just saying!