How to Beat Vanguard Index Funds
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📈 While low-cost index funds like VTI and VXUS have been a game-changer for the average investor, outperforming 95% of actively managed funds, there's more to the story. In this episode, we're exploring a different, potentially more optimized way to invest your money.
🔍 We'll start by understanding the history of modern finance, including the Capital Asset Pricing Model (CAPM) and the emergence of beta as a measure of market risk. We'll also discuss how legends like Warren Buffett achieved their success, potentially through factor investing.
📊 Next, I'll introduce you to the concept of factor investing, explaining how factors like size, value, and profitability can drive returns. We'll look at the three-factor model by Fama and French and how it evolved into the five-factor model, offering a more nuanced understanding of market returns.
💡 But why isn't everyone using this strategy? We'll delve into the challenges and the importance of conviction in your investment strategy, especially during periods of underperformance.
📚 To bring theory into practice, I'll showcase real-world examples and comparisons of different portfolios over the past 25 years, including a Dimensional Funds Balanced Equity Portfolio and various Vanguard portfolios. You'll see how a factor-weighted approach has historically outperformed, even during tough times for value investing.
🤔 Should you jump into factor investing? We'll discuss who this strategy is best suited for and why a market portfolio might still be the best choice for DIY investors.
00:00:00 Intro
00:01:26 The Failure of Active Managers
00:02:41 History of Modern Finance
00:05:57 The Creation of Index Funds
00:07:53 The Financial Science
00:10:02 Explaining Warren Buffets Performance
00:11:10 Overview of Factor Performance
00:15:28 Performance Overview With Market Data
00:19:34 Conclusion
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📅 THE BASICS OF RETIREMENT PLANNING
Retirement planning has several steps, with the end goal of having enough money to quit working and do whatever you want. Our goal is to help people master retirement and retire without worry.
Step 1: Know when to start retirement planning. When should you start retirement planning? The earlier you start planning, the more time your money has to grow. That said, it’s never too late to start retirement planning. Even if you haven’t so much as considered retirement, don’t feel like your ship has sailed. Every dollar you can save now will be much appreciated later. Strategically investing could mean you won't be playing catch-up for long.
Step 2: Figure out how much money you need to retire, The amount of money you need to retire is a function of your current income and expenses, and how you think those expenses will change in retirement.
Step 3: Prioritize your financial goals. Retirement is probably not your only savings goal. Lots of people have financial goals they feel are more pressing, such as paying down credit card or student loan debt or building up an emergency fund.Generally, you should aim to save for retirement at the same time you're building your emergency fund - especially if you have an employer retirement plan that matches any portion of your contributions.
Step 4: Choose the best retirement plan for youA cornerstone of retirement planning is determining not only how much to save, but also asset allocation. It can make a massive difference in your retirement plan.
Step 5: Select your retirement investments. Retirement accounts provide access to a range of investments, including stocks, bonds and mutual funds. Determining the right mix of investments depends on how long you have until you need the money and how comfortable you are with risk. It’s often helpful to talk with an adviser to discover the right mix of stocks and bonds.
❣ SPONSORED No, this video was not sponsored.
⚠️ "DISCLAIMER:⚠️This is not financial or investment advice. This Channel is meant for EDUCATIONAL AND ENTERTAINMENT PURPOSE only. None of this is meant to be construed as investment advice, it's for entertainment purposes only. #retirementplanning #retirement #passiveincome
Пікірлер: 45
Did anything surprise you?
It's usually the 1% + fees that CFP charges that cost investors the most. As Fisher Investment's slogan saids, You make more we make more. You loose more we still make it. 2 -3 stock funds works without the 1% fee
It would be great to bring this to reality in a future video for folks who max 401K contribution with its limited investment choices and have nothing left to contribute to x-factor models. Thanks for the great videos!
Growing up and working professionally at VG for 23+ years, I’ll stick with my TotStk fund. Interesting approach and certainly can work with work. I’m retired and do not want to spend time looking at my investments much these days. I think you and your clients should do well!
@foundryfinancial
2 ай бұрын
Thanks, Chris! And I think Vanguard has done more for the investor than any other firm out there. For most people, unless they’re using an advisor or spend a lot of time researching, I think a simple Vanguard market approach is best. I used the cover to grab attention, but I almost felt bad because I love Vanguard and its legacy!!
Bogleheads often tilt a portfolio designed by Rick Ferri. Total stock market, Total Intl, and Total Bond, with an extra dose of small cap value
Vanguard is easy to find and select on apps like Etrade. Would love to move towards a balanced portfolio like you showed. How do we create one?
@foundryfinancial
2 ай бұрын
You can use some Vanguard funds, they’re a great company! But also look at companies like Dimensional funds and Avantis. But, as I said in the video, most people are better off with a simple market weight portfolio - unless you really understand the strategy.
@savanah1407
2 ай бұрын
@@foundryfinancial Thank you. I think I wasn’t understanding the terminology but I’m getting the picture now. Appreciate your time!
What is the definition of tilt? Is it a higher % of value, small cap than say large growth?
@foundryfinancial
2 ай бұрын
Higher than a market weight. For example if small value is 1% of a market weighted portfolio a tilt could be taking it to 8% of the total portfolio. Not recommending that, just giving an example.
I love Vanguard and I know and read a lot of things about Fama?French model (which i love as well). My Vanguard portfolio has a lot of small cap value and growth, energy, even some FTSE index which oddly enough performed 135% from 2014 point of my investment. REITS were very good (until recently) and also VIVA (value index), not to mention their international index. For me Vanguard all the way, but diversified in many "morningstar boxes". By the way, you should take all these videos you make and make a longer one hour presentation (based on whatever criteria you want) . Editing is a breeze for these youtube videos. Cheers!
@foundryfinancial
2 ай бұрын
Thanks! I appreciate it. Maybe I’ll stitch them together someday. Yeah, I have nothing against Vanguard. They’ve been great for investors. I use some of their funds, I’m just using them as a stand in for a market portfolio because everyone equates Vanguard with a market portfolio. I will say, the Vanguard value fund isn’t great. If you look at the regression, it isn’t a very deep value tilt. You can compare using Portfolio Visualizer. Also, if you want a deep value tilt in a fund, AlphaArchitect and Bridgeway both offer great funds.
@user-py7wp6nw9h
2 ай бұрын
i do love your videos. Yea stitch something together, make it cool. I am an editor in Hwood, and I can tell you a lot of these financial KZread videos are ok but they are video podcasts, so I feel a longer version would be more engaging, especially now-a-days when people would rather watch something than read. (nobody reads scripts in Hwood, they want a sizzle) Keep up the good work! @@foundryfinancial
How is the DFA Balanced Strategy invested fund-wise ? Is there a ticker or tickers with percentages ?
@foundryfinancial
2 ай бұрын
If you Google around you can find the tickers, although they’ve update the portfolio. I want to stay away from talking about percentages or funds, because I want to stay far away from specific investing advice.
@Bill-vk7fh
2 ай бұрын
@@foundryfinancial Ok, thanks. Tough to get more than a high-level understanding of your video though as I understand the other portfolios, but not the DFA Balanced Strategy.
@foundryfinancial
2 ай бұрын
@Bill-vk7fh yeah, makes sense. It’s pretty easy to find the breakdown with some Google research. Also, there’s a guy, Eric Nelson, on Twitter that often posts a link to a backtest he created using the tickers.
Confirming line of thought
Great class. Very interesting. Really glad you understand it all. 😊
Interesting vid...I stick to my 2-3 fund portfolio now after doing some factor-tilting at the start. Go with whatever works for you. Cheers.
@foundryfinancial
2 ай бұрын
Thanks, Ben!
I got out of the market in 2/2021. Thought I was a rock star. Didn't get back in. Looks like I am a fool.
@foundryfinancial
2 ай бұрын
It’s impossible to time this stuff and fear is powerful when things seem to be imploding.
Larry Swedroe, a value investor in his book: The Incredible Shrinking Alpha, P. 45 Warren Buffet beat the S&P 500 by 10.3% from 1985 - 2004, but from 2004 - 2019, just 0.3%. Larry writes with so many smarter people in investing, there are just cannot get big alpha.
@foundryfinancial
2 ай бұрын
Great book. But, also, the time period you’re using seems unique in that a few companies beat expected growth substantially. But even so during that same period a well balanced portfolio handily beat a market weight. To be fair, I’m less interested in alpha and more interested in asset allocation. As you can see in the video there was a massive sequence of return risk with just the S&P 500.
After the 2000 - 2003, DFA growth grew, Schwab came out with the Fundamental indexes, and Wisdom Tree came out with value indexes. Value is not doing well.
@foundryfinancial
2 ай бұрын
But a balanced equity portfolio still held up much better in regards to a sequence of return risk. In addition, it’s more than just value. DFA uses high probability, which is a blend when value struggles. Also, all value is not the same. Just look at QVAL.
Portfolio Visualizer changed the model - only 10 years of free data unless you pay a hefty subscription price.
@foundryfinancial
4 күн бұрын
Ugh. I just saw that. Super frustrating.
Do you actually make money for your customers after your fees, compared to VTI?
500,000 in the Nasdaq 100 (QQQ) in 1999. Would have returned over $6 million.
@foundryfinancial
2 ай бұрын
It’s true. EXCEPT, the sequence of return risk would have wiped you out years ago. Planning for retirement is a whole different way of investing. You have to diversify or it’ll wipe you out if you need to pull cash out.
Mutual Funds are a complete scam and aren't transparent about their expenses and ratios. People are fools to invest in them.
@foundryfinancial
2 ай бұрын
So are you making a case for ETFs or individual stocks? Until recently, mutual funds was the only wrapper for index funds and active funds. Or are you just equating mutual funds with active funds? I’m a bit confused…
@shanew7361
2 ай бұрын
@@foundryfinancial I can buy the same stocks individually that are held in a mutual fund or an etf and not pay any fees. People are naive to how the fees/expenses are actually calculated and the tax implications.
You’re working so hard, may all your wishes come true.
I really enjoyed your video and love Errol Morris . Can I add my email in a more private place?
@foundryfinancial
2 ай бұрын
Thank you. Just email me at kevin@foundryfinancial.org and I’ll send the link.
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