| | | "The holy grail is making big annual returns with no risk" : Would love for you to show me how to make big annual returns with no risk.
"ETF funds are fine for risk adverse investors" : I wouldn't say that equity ETFs or traditional equity index mutual funds are fine for risk averse investors. Equity ETFs, such as SPY [S&P 500], or VTI [Total US Stock Market], or their 'traditional equity index mutual fund' counterparts, take on the full risk of the market, or more specifically, of the index they are investing in. In the examples above, the full risk of the S&P 500 or Total US Stock Market. That's not what I think of as a risk averse investing vehicle. There are plenty of actively managed mutual funds designed for the risk averse investor, but equity index funds to me don't fit into that category. Of course, a risk averse investor could invest in equity index funds and reduce the risk by modifying the percentage of their portfolio invested in equities vs. fixed income. But there's nothing about index funds that reduce risk. You get the full drawdown in a down market, which may cause the risk averse investor to sell at the worst time.
"Hi Kirk....Index funds are great for safety and protecting one's downside." Would love for you to tell me how an index fund protects one's downside. From October 2007-March 8, 2009, the US Stock market went down 57%. Those invested in index funds naturally experienced the full drawdown. I'm a big fan of index funds, but I don't seem them as a vehicle for downward protection. But I see your point if you are comparing them to people who perhaps are purchasing speculative stocks, or not diversifying their equity portfolio, by concentrating in only a few names.
"Here we are in the best bull market in the last 30 years, and some are saying "This is just too good....and I'll have to go to the sidelines with an index fund"----Jerome, I don't consider switching to an index fund as "going to the sidelines". Heck, in an index fund you have full market exposure, no cash, fully invested, compared to some actively managed equity funds that are holding a significant cash position also. When I hear the term "go to the sidelines" I think of selling equities and going to cash.
"A trust and an active investor have different objectives. A trust should preserve capital at all costs".------I'm pretty much in agreement with you about the need to preserve capital in a Trust. Your comment was in reference to the Sage of Omaha writing that he wants his wife's portfolio to have 90% in an S&P 500 index fund and 10% in ST bonds. But a portfolio that is 90% equities definitely is not one that will "preserve capital at all costs." You'll have to speak with Warren Buffett about that one!!
Jerome, don't mean to give you a hard time. I agree with a lot of what you said, except for the general opinion [implied, not stated] that seems to indicate that the active investor choosing individual stocks will outperform the equity index investor. After all, if active investor A is making a shrewd move either buying or selling a stock, active investor B is making a dumb move on the other side of the trade. So it's a zero sum game, and in aggregate, considering the portfolio performance of All participants, index fund investors do pretty well.
But you are 100% correct, Buffett doesn't invest in index funds, and he wouldn't be where he is today if that's what he invested in.
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