A word on bias

Those who follow my posts see that I am biased toward broad-based stock index funds and against actively managed funds, or buying individual stocks, for that matter. So that begs the questions, exactly which index, which fund and which wrapper (mutual fund or ETF)?

The answers matter and they don't. The differences presently appear to be small. Historically they were NOT.  Do we buy the granddaddy "Vanguard S&P 500" mutual fund? The "SPY" ETF? or the newer flavors from Fidelity or Schwab even. How about the NASDAQ? The Total Stock Market Fund? or maybe the Russell 2000 index ETF symbol IWM?

The best answers IMHO are the more inclusive indexes, not the NASDAQ, not the IWM, not any of the so-called "betas"or the funds that slice and dice the market into varied sectors and categories. No one knows where lightning will strike so the best answer is to just buy and hold the whole market. This way you miss nothing and you capture whatever gains the market has in store.

For all intents and purposes, the "wrapper" an index comes in doesn't fundamentally matter. Whether you buy an S&P 500 mutual fund, an S&P 500 ETF or, theoretically, buy all 500 S&P stocks in the right proportion in your stock account, it doesn't make a difference- except for commissions, execution skill and convenience. Given all this, I AM biased to Vanguard's funds or the Vanguard ETF VOO, or, of course, the VTI (the more inclusive "Total Stock Market" index fund).

Bogle himself disliked ETFs because it tempted investors to the dark side. The dark side, the enemy of long term gains, is trading and VOO, he thought, was too easy to trade. Note on latecomers to the indexing bandwagon such as Schwab, Blackrock and nearly all the others: I don't trust them. They are not built with the cost structure and business model to serve the individual long-term investor. They owe their existence to high fees and I believe they will pressure all their passive indexing clients with up-sells and rising fees over time.

We buy the S&P500 index because of its composition, reflecting the market, and its historical absolute and relative performance. Owning the S&P is IMHO the best way to capture whatever the market offers. It is predictable to the extent that where the market goes, so will we.

Feel free to post comments.

Disclaimer: Posts are for education only and not investment advice, may be subject to change without notice, and, while prepared with care, may be subject to omissions and errors.