Investing in stock market

Ojb

I've been researching into this and people like john Bogle , JL Collins and Jonathan clements all suggest that investing is good but also very straightforward.
They all advocate buying one or two globally diverse index funds that have low fees and will track the overall growth of the various indices.
They say that very few active managers beat the index and most do worse especially once their fees are taken.
Does anyone agree?

LobsterMemory

LOL!

Pretty much everyone on these boards, I think you'll find

NoMore

LobsterMemory wrote: »

LOL!

Pretty much everyone on these boards, I think you'll find

You haven't been around much then! A thread usually erupts every so often that basically equates to passive vs active and no consensus is ever really reached.

LobsterMemory

Wow, really?

I've only seen everybody being nudged towards their nearest Vanguard fund

Johnnyboy11

Vanguard for me, 70% of my investments, plus a few actives and cash, just to keep me interested.

bowlhead99

Ojb wrote: »

I've been researching into this and people like john Bogle , JL Collins and Jonathan clements all suggest that investing is good...

No real arguments with the results of your research so far (ie the first part of the first sentence). Most people agree investing is good.

...but also very straightforward.
They all advocate buying one or two globally diverse index funds that have low fees and will track the overall growth of the various indices.
They say that very few active managers beat the index and most do worse especially once their fees are taken.
Does anyone agree?

Yes, people do agree.

Others disagree that it's that simple. For example, "overall growth of the various indexes": in what proportions? There are indexes for stocks and bonds and the price of precious metals, a basket of currencies, barrels of oil, tons of rubber or frozen orange juice concentrate.

Some people will tell you that all you need is to hold one fund which allocates all your money in a way which tracks an index of the biggest companies existing in the world by reference to their free float stock market capitalisation. Over the long long term, it is unlikely that the sum total of all the companies that exist in the public markets will end up being worth less in real terms than they are today. So if you buy that index, you should make money in the long term.

However, over any given year or two, the value of such an index could fall or rise 50-60%, because markets are fickle. Consequently, even if they don't expect to need their money back any time soon, people will take steps to moderate the potential swings by buying other assets whose values are not so well correlated with the price of large public companies. Bonds for example is the main 'non equity' asset class but there are also others such as commercial property, infrastructure projects, commodities and so on.

There is not really an 'everything index' because most investors don't want that as a product. If you were to let 'the index' decide the proportion of bonds or fixed-income assets to equity, you'd end up with over two thirds of your money in bonds, because there are more bond investments in existence than equity investments in free float. Depending on your personal circumstance you might prefer a different (lower) level of bonds as such a portfolio may not allow you to reach your long term goals, so you'd make a personal decision how to allocate your assets at a high level. But then when you look in detail at what the indexes hold, you might have further concerns.

E.g. do I really want to invest my equities money into over 5000 companies but in a way that leaves me with over 2% in Apple? If US companies grow in value this year relative to Japan or China or Russia should I just let my 'US stock market' exposure grow, or should I re-balance it back to a lower proportion of the total equities (50%? 40%?). Am I happy with how the large companies are better represented than small, or developed stockmarkets so much bigger than emerging or frontier markets in the global indexes, etc... In trying to address such concerns, but still preferring to use index funds for cost advantages where good index funds exist - you might end up with a large number of funds.

If you are rich AF and know you won't care about seeing your portfolio tumble in value from time to time before eventually recovering, it is probably very easy to say that the basic global index of large companies will be a 'good enough' return, and you'll just jump on and ride the index up and down. While others look at the history of how different markets have grown or shrunk over different time periods and try to construct a portfolio which targets a different level of volatility than you would be given by the raw return of 'the market'. To Bogle this is unnecessary complexity if you are just going to buy and hold for many decades.

Prism

I absolutely agree that very active managers beat the index and in fact do worse. The stats tell us that. However I don't think its as hard as people make out to avoid quite a few of those managers giving you a reasonable chance of picking a good one.
At the moment i don't hold any passive funds but have done over the years. If i were to hold a bond fund that would be passive