02-23-2021, 02:51 AM
Why I'm skeptical of "just stick to total market index funds, because the studies sa
<!-- SC_OFF --><div class="md"><p>A lot of studies can be very misleading. Especially if you just look at them at a surface level without examining whether or not they even apply to you. One such example is the claim that you'll do a lot better by just sticking to total market ETFs because the "studies say so and that retail investors usually underperform unless their money is being managed by someone else (either a passive or active fund)".</p> <p>for retail investors:</p> <ol> <li>These studies are looking at <em>everyone</em>. From day traders, to swing traders to people who don’t know basic tenants such as time in the market beats timing the market. If you don’t day trade, if you don’t invest only for the short term and don’t try to time the market, why would you look at a study where a significant portion of the population is doing exactly that? What about studies that look at just long term investors, who know what the hell they're doing and who aren't constantly trading?</li> <li>These studies are looking at a time period that's not really applicable to today's investors. A lot of communities and tools on the Internet either did not exist 10-15+ years ago or did not yet mature to the same level of sophistication that they're at right now. I don't think it's possible to overestimate how big of a deal the Internet has been in empower retail investors.</li> </ol> <p>But the "studies" say that 95% professional traders underperform as well. So what makes you think you'll do any better?:</p> <ol> <li>It’s much harder to generate alpha when you’re managing 10s of billions of dollars.</li> <li>Fund managers have rules and regulations that they’re forced to follow and many can only allocate a small percentage of their portfolios in their “top 5 ideas” due to risk management policies for example.</li> <li>Many aren’t even trying to beat the market but are staying within their own benchmarks they’ve set for their customers, and for this reason they’re mostly doing short term trading. Which means they'll most likely underperform long term oriented portfolios over 10-15+ year periods.</li> </ol> <p>​</p> <p>As Warren Buffet said "Investing is the only field in the world where the amateur can very likely do better than the professional. As long as they are self aware that they are in fact amateurs." and "When I was younger I had more ideas than money, now that I'm managing hundreds of billions of. dollars I have more money than ideas."</p> <p>I’m not saying that you <em>shouldn’t</em> invest in index funds at all. I’m just saying that the arguments I’ve read about why you should "just stick to total market index funds, because the studies say you should", seem shallow and may not be applicable to a lot of people in this subreddit or people who take a serious interest in investing.</p> </div><!-- SC_ON --> submitted by <a href="https://www.reddit.com/user/Okmanl"> /u/Okmanl </a> <br/> <span><a href="https://www.reddit.com/r/investing/comments/lq36ut/why_im_skeptical_of_just_stick_to_total_market/">[link]</a></span> <span><a href="https://www.reddit.com/r/investing/comments/lq36ut/why_im_skeptical_of_just_stick_to_total_market/">[comments]</a></span>Kind Regards R
<!-- SC_OFF --><div class="md"><p>A lot of studies can be very misleading. Especially if you just look at them at a surface level without examining whether or not they even apply to you. One such example is the claim that you'll do a lot better by just sticking to total market ETFs because the "studies say so and that retail investors usually underperform unless their money is being managed by someone else (either a passive or active fund)".</p> <p>for retail investors:</p> <ol> <li>These studies are looking at <em>everyone</em>. From day traders, to swing traders to people who don’t know basic tenants such as time in the market beats timing the market. If you don’t day trade, if you don’t invest only for the short term and don’t try to time the market, why would you look at a study where a significant portion of the population is doing exactly that? What about studies that look at just long term investors, who know what the hell they're doing and who aren't constantly trading?</li> <li>These studies are looking at a time period that's not really applicable to today's investors. A lot of communities and tools on the Internet either did not exist 10-15+ years ago or did not yet mature to the same level of sophistication that they're at right now. I don't think it's possible to overestimate how big of a deal the Internet has been in empower retail investors.</li> </ol> <p>But the "studies" say that 95% professional traders underperform as well. So what makes you think you'll do any better?:</p> <ol> <li>It’s much harder to generate alpha when you’re managing 10s of billions of dollars.</li> <li>Fund managers have rules and regulations that they’re forced to follow and many can only allocate a small percentage of their portfolios in their “top 5 ideas” due to risk management policies for example.</li> <li>Many aren’t even trying to beat the market but are staying within their own benchmarks they’ve set for their customers, and for this reason they’re mostly doing short term trading. Which means they'll most likely underperform long term oriented portfolios over 10-15+ year periods.</li> </ol> <p>​</p> <p>As Warren Buffet said "Investing is the only field in the world where the amateur can very likely do better than the professional. As long as they are self aware that they are in fact amateurs." and "When I was younger I had more ideas than money, now that I'm managing hundreds of billions of. dollars I have more money than ideas."</p> <p>I’m not saying that you <em>shouldn’t</em> invest in index funds at all. I’m just saying that the arguments I’ve read about why you should "just stick to total market index funds, because the studies say you should", seem shallow and may not be applicable to a lot of people in this subreddit or people who take a serious interest in investing.</p> </div><!-- SC_ON --> submitted by <a href="https://www.reddit.com/user/Okmanl"> /u/Okmanl </a> <br/> <span><a href="https://www.reddit.com/r/investing/comments/lq36ut/why_im_skeptical_of_just_stick_to_total_market/">[link]</a></span> <span><a href="https://www.reddit.com/r/investing/comments/lq36ut/why_im_skeptical_of_just_stick_to_total_market/">[comments]</a></span>Kind Regards R