Index portfolios recovering quicker but...

...they have a way to go yet. WylieMoney is still in the lead.

When I put together a portfolio of 20 funds, one fund in each of 20 different fund categories, and then picked the 20 Vanguard Index funds that covered the same 20 categories and started tracking their performance, I assumed the hand picked funds would not keep up. I also assumed that the index funds would be better from a capital gain/ tax perspective. So both assumptions, have turned out wrong.

I limited myself so the funds I picked are not the best funds out there. My criteria:
* Open to new investors
* Available through one brokerage (I used Etrade)
* Had to be a NTF- No Transaction Fee fund. So no fees, no loads.
* An initial investment minimum of $2500 or less
* A subsequent AIP investment minimum no greater then $100

Some of my best choices are rated 2-3 stars (ACFFX for example). But during the recent assault...

...my WylieMoney portfolio wupped up on the "Lazy Vanguard Index Portfolio" like nobody's business.

I picked an equally weighted portfolio of three Vanguard total market funds covering Domestic and International Stocks and bonds in equal weight by category of the 20 fund portfolios and it has fared better than the 20 Vanguard funds, but WylieMoney is still in the lead. At least it is back above $50,000!

Over the last two days, the WylieMoney portfolio has not risen as much as the Vanguard portfolios, but it remains ahead. When the markets tanked, the index portfolios really suffered.

More surprising to me was the realization that Morningstar shows that the WylieMoney portfolio has 11.96% Potential Capital gains exposure and a 35.85% Average Turnover Ratio compared to the Lazy 20 which has a higher Potential Capital Gains exposure of 15.13% and a Turnover Ratio of 36.20%. And the 3 index fund portfolio has a Potential Capital Gains Exposure of 20.83% with a lower 12.35% Turnover Ratio. Since I was thinking of this as a non-retirement account- that makes a difference.

I admit I do not understand in great detail all the complexities of how to accurately assess tax impacts of all the individual funds- international funds, REITs, etc all of which are in these portfolios. But if portfolios turn over a lot- meaning the fund managers are selling stocks and buying different stocks more often, and the capital gains exposure is high, meaning tax is owed on profits, then when the taxman comes, you take a larger hit.

And everything I have read in the press has led me to believe that index investing is MUCH more tax efficient than picking a bunch of low (relatively low!) barrier to entry managed funds.

So all in all, a good week. Plus, I saw the Police at Fenway Park last Sunday!

The details (click for a larger view):


Jonesy said...

The Police, eh?

Man, when that Sting fella finds a phrase he likes, he grabs onto it and doesn't let go!

He'll sing it over and over and over and over and over and over and over and over and over and over and over and over and over and over and over and over and over and over and over and over and over and over and over and over and over.

And then one more time, just to be sure.


Wyliemoney said...

haha. It's true. I actually have a little video from my cell phone. The sound is terrible, but you can still make out that he is repeating the same thing over and over.