Are Index Funds Over-Diversified?
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- Опубликовано: 7 фев 2025
- Every now and then I hear the comment that index funds result in over-diversification. The thinking goes that instead of buying all of the companies in an index, you might be able to focus on a smaller subset that you believe will perform better than the market.
It makes sense. Of course you can’t beat the market by holding it. The problem is that decreasing diversification leads to a wider range of possible outcomes, with a disproportionately large probability of a negative outcome, relative to the market.
Referenced in this video:
Some Tough Love About Dividend Investing - www.pwlcapital...
Why Indexing Works - papers.ssrn.co...
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This channel needs more popularity. Great overview in multiple investment topics. I usually tune in while driving.
Petar Petkov please let me know where you drive. I hope it’s not my neighborhood.
@@davincicodedanbrown LOL! Hopefully P. Petkov is just listening to these RUclips videos, like a podcast. The infographics Ben's producers include are not essential to the understanding of the concepts on which he's discussing. ;)
Why?
Three years ago, after discovering index investing, I asked our RBC financial advisor why we were following a different strategy of buying preferred shares and other crap, and told him I was thinking about doing something like XUU. He told me not to do it because it was too diversified, and that that would cut down my gains.
Of course he forgot to mention how his fees cut down my gains... We fired him a month later after opening Questrade accounts.
Cool story bro
Deserves 1M subs. Top quality.
Over-diversification was one of the points in Phil Town’s video “Bad Investing Habits You NEED to Break”. That guy does have some good advice but everything from the way he looks into the camera to the tone of his voice is incredibly condescending and patronizing. It is super common in this type of video for the person to speak as though anyone who disagrees with them is an idiot and not bother having any data to back up anything they say. Ben Felix is one of the only investment channels I’ve found on youtube that I can stand to watch because he simply presents his case and all the evidence he has found to back it up while also outlining which investment goals would be outside of the strategy he is recommending.
As a Phil Town acolyte, and knowing him in person, I want to say that Phil Town is a really down-to-earth guy. The former river guide has learned several things since his more informal education in the stock market and it shows in how he presents his material that he is emotionally engaged with his history. Remember, he was cutting his teeth on stock picking and investing when the majority of this research was still full of a lot more holes than it is now and arbitrage opportunities were more readily available because the flow of information was less free.
Phil Town does have a habit of seeing evidence from his group of acolytes based on anecdotal data; this causes some survivorship bias in his group that reinforces his opinions. This might be what you are seeing; however, there are many in his group that understand this, but still want to play the stock picking game for greater returns that a "over-diversified" result. Remember, in order for their to be efficient markets, there needs to be those who try to find arbitrage opportunities in the market to make the markets more efficient. Thank-you Phil Town and all those who try to beat the market for adding that liquidity!
I've noticed that generally the people who act condescending are the ones who are trying to sell you something. It's a common sales technique, they try to intimidate you by making you feel stupid, so you'll just do what they say.
Bogle speaks through you.
G E K O L O N I S E E R D
@@someonesilence3731 Zeg makker
@@willemvanoranje1533 Kokos noten zijn geen specerijen.
Have you ever done a video on how Index Funds work on the most basic level? I mean, let's say that stock A drops out of Index X, stock B enters the index, and stock A grows to dominate the index. What happens, and when, and how do you avoid buying high and selling low?
Look for the 'Turnover rate", the higher the percentage the more active (trading) the fund does. Each time the fund sells a stock they will pay capital gains and taxes which is a fee ultimately passed down to you through broker fees. Generally the lower the turnover % (more passive) the security is the less fees and taxes the fund will incur, and the more diversified. An all cap index like the "Wilshire 5000" guarantees you 90%+ of the USA stock market with low fees because you aren't paying much trading/taxes/turnover fees. Yahoo finance is one of many tools you can use for finding turnover rate.
Don't look for the needle, buy the haystack.
If a stock does really well, I don’t think the index fund would have to buy a lot more to keep following the index. Imagine an index fund has €1000 of stock A which makes up 10% of the index. The stock does really well and goes up 100% in value. Now it makes up 20% of the index. Assuming the index fund had the stock at 10%, the stocks that the index fund had rose in value to where they’re now 20% of the index fund too.
Unless the index fund is making tracking mistakes, the returns of the stocks are already captured by the stocks the index fund holds. They don’t need to buy more stocks just because a stock goes up in value.
The functioning of ETFs is a very interesting topic though and it’s highly recommended.
To eliminate this issue, just dollar cost average. That means you buy the index every month, ignoring the price. If you're in a one-index portfolio, there is no need to overthink. In fact, there's no real need to think, that's the advantage of such a portfolio. You put the cash in, it grows with the market.
@@swissarmyknight4306 You misunderstand the question.
If stock are successful enough they enter the index, and are then bought by the fund. When stocks become unsuccessful, they leave the index and are thus sold by the fund. How is this not buying high and selling low?
Boy, how lucky I stumbled upon your channel just before beginning as an investor. Two days ago I was going to buy stocks. I already had a list. But now it's ETFs for sure. Good I decided to wait for my funds to be fully desposited. But you said not all ETFs are created equal... Let me take a look at that video.
Curious to learn what you’ve selected. I like to keep it simple, so for the equity part of my portfolio I use IWDA (an index fund tracking the MSCI world index, which tracks large cap stocks in developed countries).
@@alex2143 what about small and medium caps and emerging markets?
@@alex2143 The MSCI World also tracks medium caps
As Jack Bogle once said, “why look for a needle in a haystack when you can just buy the whole haystack?”
Is this the right place to request future video topics? If so, I'm very curious about how much weight should be given to international holdings. Vanguard, for example, expects US stocks to underperform international stocks. Does this mean we should be holding a higher percentage of international/emerging market indexes than what is usually recommended? Might the US follow in the footsteps of, say, Japan, and have the potential to deliver very low returns for a very long time? Can you really diversify internationally considering that many markets, like China, don't really work in the same way as developed markets?
I know you've touched on these in previous videos/podcasts, but I think there's lots to explore here. Thank you!
This channel is all about trying not to make predictions Are you asking them to make a prediction? :D When you say that not all markets work the same way, do you mean that they could have different factors? I'm actually also curious, has there been research in identifying factors per country or only from a global perspective?
@@Desimere Well, holding a well-diversified index-based ETF is kind of making a prediction. How should the weighting of Canadian vs. US vs. international stocks be done? In the international part, what should the split be between developed and emerging markets? When a decision is made by an indexer to, say, increase the weight of Chinese stocks in their index (which happened with MSCI, didn't it?), what does that mean for an index fund I hold?
I'm a completely passive investor, and the rationale for these decisions isn't clear to me. I can buy an ETF that weighs these 1/3 each or whatever, but that strikes me as a bit of an "active" decision. Is there a rules-based, evidence-based "default" weighting I can pursue, and if not, what should a passive investor do?
@@ybhandari I don't think there are enough large stable countries to make objective research about which of them will in the long term outperform others. On that level, we are all stock picking :D
Ben, your content is on a higher level than most you tube investing channels. Appreciate the food for thought backed up with research, also the videos on happiness, psychology, and keeping things in balance.
Such a great channel. Love that Ben doesn't try to entertain and impress us... it's all about data and common sense.
Thanks! I hope it's still a little entertaining though.
It is entertaining, thank you.@@BenFelixCSI
Ben love your videos, I just wish you put links to the papers, studies and links you mention on them to easily find them
Ben,
As always great video and information. Given your line of thoughts I was wondering what research has iShares done vs Vanguard with respect to their index based Factor ETFs. iShares Factor ETFs are very concentrated (around 100 to 200 stocks) compared to Vanguard and others who have over 500 stocks in their factor based ETFs (except the ones based on minimum volatility). If both types of factor ETFs seek to outperform market beta over the long-term, then the factor ETFs from iShares should have higher dispersion in their expected return than the ones from Vanguard. Is that by design or are there other research findings that have gone into the design of these ETFs?
I would appreciate your thoughts. Thanks.
Can you explain the differences between various index funds? After investing in one or two, it's hard to know if they're the "right ones" to be in...
Dear Ben! I am thinking about minimizing both Fees and Taxes in my 100% stocks Portfolio. My idea would be to (randomly?) buy 150 different stocks (Large, Mid, Small - 50 each) with as little dividend payments as possible (don’t want to pay taxes on annual returns), from all kinds of industries, from all countries in that i only have to pay the german minimum tax of 25% on dividends and keep them for at least 20 years. I could use both incoming dividends and my monthly savings to rebalance a bit between countries, size, and industry (buying new shares yet again). I know that this is NOT what you are teaching, yet i would love to get feedback on this idea. It would safe both taxes and TER - while still being reasonably diversified as all the 150 stocks will be quality weighted. Keep up the awesome work, you are by far my most favorite investment channel ;) Greetings from Germany, Alex
P.S: When picking the stocks (which i could to at random really) i could look into the annual reports of the most successful small cap active fond managers in July to get a few of their „hidden champions“. It completely amazes me that you can do that for free 😂
@@MrBomoro I'm not Ben, but to me reducing diversification to minimize fees and taxes feels like cutting off your own nose to spite your face. You could do worse or you could do better than the market, but in general the money you make from the diversified approach should offset the extra fees and taxes you pay.
Keep up the good work. Without a doubt the best investment channels on RUclips. Thank you so much.
you are the john Bogle of Canadian personal finance RUclips. Thank you
Rob Carrick.
I would be interested in research or your view on market cap weighted indexes vs equal weighted ones. Naively, one might think that increases diversification since most market weighted indices only hold most of their value in a small number of stocks.
Great content Ben... How does one even begin to argue with such a well researched and presented topic. Just when I seem to settle on an investment philosophy you come up with something that blows my strategy out the water....I wish I had known this much earlier though my experience with a small subset of dividend paying stocks supports your findings. However the dividend ETFs have been winners even from a total return perspective. I'm not sure whether this is Country specific. On the other hand could it be that the higher number of stocks in the dividend ETFs lead to a lower dispersion of returns leading to better outcomes?
I absolutely love your work and agree with almost everything you say, thanks for making these!
Another way of increasing results (by taking on more risk, not by trying to find better risk adjusted returns) would be to leverage your investments (even a tiny bit like 1.2-1.5x). Might it be worth making a video about that? These low-interest days let you borrow for around 1% if it's backed by stocks.
Dear Ben,
Your Channel is Great and has led me to change my investmentstrategy from stock picking to passive indexing, thank you for that.
But i face one big Challenge: all american-based Etf‘s are banned in the EU!
So i searched for an alternative: SPDR is a etf Provider from Irland and is one of the only sources of index etfs but they are way more expensive than the vanguard alternative. Vanguard itself also only has very few variantes of etfs available for eu Citizen. I currently hold VUSA and i dont see many etfs which i could use to finish my portfolio.
Do you got any Solution for me?
I m excited for your answer and keep on uploading on this Channel you re great!
Same here, really frustrating legislation.
There are several solutions for this:
1. VWRL has a notation on both Euronext and LSE. This is the go-to solution for the FIRE-folk over at www.reddit.com/r/EuropeFIRE/ and www.reddit.com/r/DutchFIRE/. Due to EU tax efficiency these end up having similar costs to the US Vanguard ETFs, depending on where you live exactly. This is probably the easiest solution.
2. You could use (ITM) options to buy any of the Vanguard ETFs that are banned in Europe (This works by exercising your (call) option at any point)
3. Blackrock iShares is second best and has a lot of cheap index ETFs available.
What do you mean? I buy S&P500 through Degiro.
Orestis Palampougioukis you cant buy „normal“ Etf funds here in europe. With normal i mean managed out of the us. You can only buy products that get managed from inside the eu.
@@sinkay7702 I just said that through Degiro you can buy the S&P500...
Many ETFs try to copy an index just by picking many of the stocks, but not all of them. What do you think about this sampling method instead of full replication? The MSCI World Index for example contains about 1650 different stocks. I have seen many different MSCI World ETFs so far. Some of them buy almost all of the stocks (1600) and some of them buy about 1400 or even 1000. They try to minimize costs by leaving out some of the mid caps or small caps. Of course the goal is NOT to beat the index, but to copy the performance.
Do you mean that 1000 stocks out of 1650 are enough diversification?
More diversification leads to a more reliable outcome, but at the fringe we are not talking about big differences. In your example the first 1,000 companies probably make up 90% of the index. Missing the last 10% should have a huge impact on the outcome. I'd always aim for more diversification over less, but we are splitting hairs.
Thank you very much for your answer! You probably mean “should NOT” instead of should.
You are doing a great job with your channel.
Thanks for the great info.
Btw, kudos to whoever is editing your videos; really like those text/effects 😁
Can a portfolio be "over diversified"?
I have spent time analysing the risk profiles of a portfolio with 12 stocks and a portfolio with 35 stocks. When building a portfolio up from one, stock diversification increases dramatically with every additional stock added to the portfolio for the first ten to twelve. Then the change in the VaR (Value at Risk) flattens out. By the time you reach 35 stocks the addition of an extra securities makes little observable difference.
It is in this situation that there is potential for "over diversification". I define "over diversification" as adding risk to a portfolio by adding additional securities. You would be correct in saying this is quantitatively impossible, but qualitatively, it is almost certain.
In cases of the 12 stock and 35 stock portfolios there is a stock selection process. Given finite resources for research, it is most likely that 12 stocks will be more fully understood than 35. As the breadth of the portfolio increases it becomes increasingly likely that analysts will miss something and parts of the portfolio may experience "unexpected losses".
The lesson here is that if you are committed to stock selection, there is a point where you should stop looking for diversification for protection, and focus on fully understanding what you own.
This is of course moot in the context of the discussion of index funds, where all risks, known and unknown, are accepted as a feature of the product and the consequences of specific loss events diluted by the breadth of the portfolio.
What if one was to buy the top 10 holdings in each sector in the index instead? How dangerous is the dispersion in this case? Can anyone please link me to some research?
I just started investing. I'm so lucky to find these videos.
Thanks Mr. Felix.
- A fan from India
Ben, I love your content but I totally agree with another comment here that you should work at simplifying your explanations a bit. The simpler you communicate results in better understanding and more effective communication. Keep up the good work! I appreciate you!!
Great content as always Ben. Does it then follow that investors should avoid ETFs/Mutual Funds that do not fully replicate the corresponding index (they use sampling)? And should the answer to this question be positive - and given the limited options an investor could face in some parts of the world - would perhaps synthetical products be better than the ones using physical sampling? (I hope I'm making sense!)
Your channel and content is flat-out fantastic! Thank you for the videos! Much appreciated!
Thank you for watching!
In your opinion, what are Warren Buffett and Peter Lynch? They are stock pickers. Are they skillful? Or are they just being lucky? Or can't determine?
Excellent video! Thanks for your continued production of high-quality content.
I’m curious if you’ve written or spoken previously about the general rules of thumb or elucidation strategies DIY investors can consider when determining how to split up their portfolio.
I’m fully on board with the idea of whole-market diversification, but I have no clue what percentages of a portfolio should be comprised of US stocks, bonds, foreign stocks, REITs, etc. Curious if there are general “best practices” to determine reasonable allocation percentages when widely diversifying across asset classes and global markets.
Can we really assume the time frames mentioned in these studies is representative of the future? We have certain economic growth, demographic and interest rate trends from 1970-2020 that all appear to be coming to an end, from a macro perspective.
Yes great information and presented with precision. Would like to hear of any recent research on MPT which suggests that a portfolio holding more than 16 stocks becomes overdiversified. Obvioualy this is of interest only to stockpickers, which we should probably not be.
I don’t think it’s over diversified. I just talked there are risks which are hard to quantify and adjust such as political or mutual fund manager competence. That’s why I like index funds and talked about it. It’s easy to fall into the illusion of knowing which stocks are gonna perform best over the long run.
If investing is like trying to find the needle in the haystack, it is better to own the haystack. Not an original thought, but true nonetheless.
Absolutely, though since value stocks have higher expected returns allocating more to them makes sense too.
My response to being told index funds are over diversified, and a bad idea in general was, "I'm transferring my portfolio to PWL Capital." 👍
there is much to be said for a Boglehead 3 fund portfolio
Another great video! What about being underdiversified with indexes? Can you possibly have too much US indexes and not enough International indexes?
Hi, una consulta: is bad having 100 ETFs, considering fiscal and counting issues? Thanks
Hello Ben, I have a question that I couldn't find an answer for on the internet, can you tell us what is the difference between an ETF that tracks the s&p 500, and an index fund that tracks the s&p 500? my understanding is if a company that was in the s&p 500 stops being in the s&p 500, the index fund will sell this company's stocks and invest in the new company that got added to the s&p 500, does that happen in ETFs or not. if it happens, then why would someone buy an index fund over an index etf or vice versa? which one is more superior to the other?
Their holdings are the same. The only difference is how they're structured. An ETF trades like a stock, so you can only trade whole shares. A mutual fund can be traded in dollar amounts and directly between other mutual funds, whereas ETF shares must be sold and clear before the money can be moved to something else or withdrawn.
In general, mutual funds offer more options but are slightly less tax efficient. Some funds are only available as ETFs, but most are available as both.
@@alankoslowski9473 Thank you
I find index funds that track the American market too risky. Of course there are the indexes that track the worldwide market. But I think the only safe investment is the interplanetary solar system index. It’s incredibly safe.
I agree with what you say in all seriousness but let me have my 20% to gamble with. I don’t gamble to be rich I gamble for the fun. I’ve gotten a wonderful adrenaline rush on the way down as much as the way up. I was salivating the past few days during the coronavirus dip
But I understand I’m stupid and insane and when people ask me for advice I always give them the advice you give
Mr Felix,
Have you studied or done any research on ETFs in the next iteration of a Great Depression?
What happens when 50% of of ETFs are sold when investors want to exit the market? Will funds like Vanguard want to dissolve the ETF? Will funds force the sale of other ETFs and give you the price at the current price?
Approaching almost 100 years since the last prolonged down period and the majority of those who lived during that period having passed we will definitely see one again. With ETFs being a new concept since the 1930s what do you think will happen when we see the next Great Depression
There's lots to unpack there, but it's not a problem with the ETF structure. What you're referring to is a massive stock market downturn. Whether it's a mutual fund or an ETF, the fund issuer will sell the proportionate number of underlying securities so as to ensure the fund trades approximately near its net asset value, and then redeem those units from the marketplace.
We've also had several major stock market corrections that have been arguably on par, or greater than, 1929. There was one in the 1980s, one in 2000, and one in 2008, to name just a few, plus a number of corrections of at least 10% in between.
Cheers,
Doug
When you say that 4% of the stocks are responsible for the whole market return, does that mean that the number of equity-funded companies is 4% of the number of firms trading on the market, or that their market cap is 4% of the total market cap? Thanks!
4% of the number of firms, not the capitalization of firms.
@@BenFelixCSI Ok, thanks for the clarification!
@@BenFelixCSI I just realized how little sense it would make mathematically for it to be based on market cap.
So what i should do if i want to capture the risk premium of such factors as size and value? Are there indexes for this? Or should I combine multiple indexes? If yes, what indexes for example?
So many great insights in just one video. I live outside the us and hate the fact that I don’t have great low cost index fund options. Investing in US isn’t tax efficient for me either :(
try vsp
Great video, thanks for this. Whilst I agree generally with your advice, I would love to know whether you think one can benefit from selectively omitting some obvious poor performers from within an index. For example the so called “Zombie” stocks: those with poor ROCE, loss making, or very high debt/low interest coverage, or who pay out dividends in great excess of their earnings. Or additionally sectors which are suffering from rapid technology/culture change such as retailers. Those that are on an obvious path to self destruction? Thanks
a friend: "index funds are so over diversified"
me: "no"
Could you please provide the source document of the quotation at 5'45 ? Thanks
It was either this paper or an updated version of the same paper carlsoncap.com/wp-content/uploads/DFA_-How-Diversification-Impacts-the-Reliability-of-Outcomes.pdf
Ben what is your advice for young investors looking for risky stocks/funds that will pay off in the long term 20+ years?
*may* pay off
Petar Petkov havvvve you watched his videos?
To add context. I'm dedicating more than enough for retirement in Roth and 401k index funds and I'm looking to invest my remaining extra portion from my paycheck to something that has high-risk-high-reward. As a group, high risk stocks pay out better in the long term. What is the best way to get exposure to higher risk.
@@P_Petkov You should watch all his videos. He answers this question over and over and over.
Great point about the median return of a small/focused portfolio being lower than the mean return of the market, due to such a big proportion of returns being from a few great (but unpredictable) stocks. For me this was the killer point, which really shows the odds are against you as a stock picker! The point about the greater spread of outcomes from a focused portfolio is obvious, yet a lot of investors would not be put off by that as everyone likes to think they are better than average at picking stocks.
Hi Ben! Could you please make a video explaining mutual fund expenses, such as MER?
What about bond index funds?
I'm so glad I found this channel! Thx a lot Ben Felix.
Good job man. U r doing great service to people like us who are new to investing and pusseled by biosed openion. Thanks 😘😘😘
Here's an off-topic question.
When comparing your recent videos with the ones that you uploaded in 2017, it's obvious that in the recent ones you're a lot less robotic, your voice isn't as monotone and your facial expression range is much wider. All of this contributes to the videos being easier to watch and to learn from.
Was this a conscious effort by you and what steps did you take to create this change?
I believe he's reading off a teleprompter, as you can just barely see his eyes reading as he's speaking. Nonetheless, practice and experience doing anything will create confidence and conviction, without inhibiting nerves.
definitely from feedback and small improvements over time
Hes definitely reading from a teleprompter as he looks right into the camera (I have one). It’s hard at first, I’m still so robotic lol. I don’t mean to be but you don’t wanna mess up your words and gotta keep up with the scroll speed. Plus nerves :p but agreed. His newer videos clearly show confidence and developed skill.
This is a great channel...I discovered the channel no too long ago and I'm glad!
Quick question: If I put an american ETF such as VGT into an RRSP, would I be free of the foreign witholding tax? Thank you sir!
Amazing amazing insightful video. Thankyou. Love how you reference so much research
Hello Ben, interesting video. I have a question about index funds that I can't seem to find the answer to. The question is: Do index funds have a set number of outstanding shares, and if so, how are they not a pyramid scheme? I understand that index funds represent specific stocks, but since the index fund(s) have a set number of outstanding shares, that means the more people who buy into the fund, the higher the price goes up, and the more it would benefit the people who bought in first, just like a stock would. I've also compared daily changes in index funds verses the actual index, and many times, they actually preformed opposite the official index report, which is very strange. Any information on this would be very helpful, I can't find anything on Google relating to the number of outstanding shares of index funds. Thanks.
I know this was a year ago, but hopefully someone finds this useful: Something like 90% of trading on an index ETF happens between people exchanging shares of the ETF and doesn't touch the underlying assets. Any trading in excess of this amount must by definition affect the underlying funds.
The reason they are not a pyramid scheme, is because non-index investors, aka traditional active traders, will always be willing to buy or sell the assets you're looking to trade. These active traders in theory drive the prices of the indices to their "efficient market price". Active investors set the price and index investors trade on that price.
For there to be a sustained arbitrage opportunity, there needs to be some type of barrier to price or opportunity discovery. We are more likely to find this with stocks that are overlooked by larger institutions because the trading volume is insufficient to overcome the problems related with spreads. As market weighted index funds are increasingly adopted, I believe I can gain an advantage in the market through an active algorithm that picks stocks based on small cap value factors that differ from others.
There are indexes that target small cap value factors, however, I am having trouble finding one that has all of the factors I desire or that the constantly changing (refining) literature indicates. Therefore, I propose that there should be some larger institution that would be able to create a personalized index with factors that I desire to choose based on my own research and experimentation to find arbitrage opportunities. Is there something like this that exists?
canvas.osam.com/
@@BenFelixCSI classy. I like it. How can I repay you?
Internet high five!
Love these videos. I'm late starting to investing and would love to know about strategies for effective investing for a shorter term, such as ten or twenty years.
There's a big difference between 10 and 20 years. If you're looking to retire in 10 years most experts would recommend a mix of index funds and bonds. If you have 20 years you could throw in some small cap value funds for a bit of extra growth potential then switch them over to index funds as you get closer to retirement.
Or if you can afford to put in some time and effort you could try investing in real estate (rental properties). These will provide some consistent income from monthly rent payments even if the resale value of the properties themselves goes down for a while.
Hey Ben!
Thank you for all of your videos, they have been incredibly insightful! I am looking for a simple approach to maintain portfolio full of a low cost index ETF's. I am 28 so I am not worried about high levels of fluctuation at this point in time. I have come into more money than I know how to manage due to flipping a condo last year and need some guidance. Does this break down seem like a good idea, or am I missing something huge?
25% VFV (S&P 500 in CAD) - Held in RRSP
25% VCN (Canadian All CAP) - Held in RRSP
15% VCN (Canadian All CAP) - Held in TFSA
15% VOO (S&P 500 USD) - Held in US TFSA
10% VE (Developed Europe All CAP) - CAD TFSA
10% VA (Pacific Asia All Cap) - CAD TFSA
This is my current thought for my approach. Despite saying I want to keep it simple any advice what I am oversimplifying / just blatantly missing, would be super appreciated!
Thank you!
Is my understanding correct that you have a 100% equity portfolio? You may want to diversify in part into bond ETFs. Some people say you should invest your age in % in bonds. (Some say it should be (your age -20)% in bonds)
So scenerio: im a student, have saved €3000 and planning to save 300-500 p month to invest. Put it all in an index fund and keep adding for the next 40years? Also what is a good index fund, other than vanguard (voo) But with my broker “degiro” cant find voo or it doesnt allow me to invest in this fund...do you have any other options? What else should i invest to diversify? Reits? Bonds? Thanks in advance if you could steer me in the right way!!😊💸
I did enjoy the video, thank you.
Can i purchase index funds on Questrade? What is the difference between index funds and something like a VGRO?
VGRO is a fund that owns index funds. It is good. Yes you can buy index funds on Questrade. This video might be helpful ruclips.net/video/rSn2CT6lDlA/видео.html
Hi Ben,
one thing that I don't really understand is, if you own the whole market, you have market beta exposure, sure. But when you own the whole market don't you own also lot of parts of other factors also? With a sinple MSCI World index, you are getting 1/3 value 1/3 blend and 1/3 growth of big caps for example. So... ¿how can you diferentiate between factor value and market beta exposure in your returns?
Hey Asier, I know it's been a year but the answer is that owning the entire market gives you the market beta, because the entire market is composed of every risk factor. Factor weighting requires you to own funds with exposure outside of market weights. Thus if small value is 3% of market weight, in order to have a factor weighted portfolio your stock allocation to small value must be in excess of 3%. Otherwise it is just the risk of the market.
I admire your videos, with such a clarity and unbiased analysis. I am going to be 60 soon. Currently 90% of my investment are managed by fidelity advisor. Their fees are eating up my gains. I would like to move my investment to low fee Fidelity index funds. I am little nervous, as I am still learning about investing. I think I need some confidence to take this step. Will appreciate any assistance.
I have a GIC maturing next month & plan on merging it & a mutual fund into an Index Fund ;-)
Clear and concise.
Great content as always Ben - I do believe however that you should attempt simplifying your explanations a bit, most people are not well versed in investment matters (and a minority who are will probably have little to gain from your videos).
I think the "problem" is that you can't compare an index fund with a handpicked stock portfolio (unless it does closet indexing). Imo there is no such thing as over-diversification in an index whereas a stock portfolio with too many individual positions will cost more time and money to maintain without providing any further excess returns or significantly lower volatility or risk.
Also, while I see diversification as a strength of index funds, maximum diversification isn't really their main point but rather a consequence.
That also goes the other way though, I see many proponents of index funds prefer one fund over another simply based on the higher number of stocks in it. I find that equally as misguided as the over-diversification argument. (This case comes up when total market funds are compared to sampled or factor-tilted funds and e.g. when comparing ESG to regular funds.)
What is you only buy low volatility stocks. Returns might vary but lower volatility is guaranteed...
The problem with Index is that there are so many of them to choose from!
Do you choose a S&P 500, Nifty 50, Nifty Next 50 or one of the thousands in here: www.mvis-indices.com/
So basically Extremely broad diversification of small index funds and hold for longevity. Correct?
Thank you so much for this video!
Hi Ben,
Is it possible to buy DFA F series funds through Virtual Brokers?
I am considering having a mix of index ETFs (for low fees, accounting for approximately 75% of the equity portion) and DFA funds (for factor tilt, accounting for approximately 25% of the equity portion).
It is not.
I would rather ask the question if global index funds are well diversified at all instead of saying that they are over-diversified. If we look at the MSCI ACWI the main portion of it is invested in USD which is a huge single point of failure. While this isn't as bad for american investors it does concern me as a non-american.
great channel, i didnt know before, subscribed.
Great video 👌😊
thank you for this video!
Nice channel! Can you give more information about HFT trading, AI in finance, and your work experiences?
Love your channel! Wish I had a million dollars for PWL to manage with me haha
that's great content. Thank you very much!
Ben, I need more of your videos!!!!!!
Parabéns pelo conteúdo!
We can talk about risk-adjusted returns, but at the end of the day, transaction and management fees with a focused strategy will lower your returns relative to just buying a low-cost index fund (in many cases). I think the data says most investors under-perform the market, which means only a "few" investors outperform at any given time period. If that's the case, why not just follow the market? For many everyday investors that's a good strategy. Over-diversification is "BS".
How about a total market versus a regular s&p 500. I know they 80% the same but why not just get the less diversified one. Warren did on that million dollar bet.
Thoughts on Index funds like VTWAX?
love videos like this. They keep the average investor in the rut that keeps them from making the great buys / returns that great investors do. If everyone knew how to invest the great buys would never happen.
You’re a god amongst men, Joe. Congratulations.
Can you explain the etf apocalypse?
What’s that?
@@BenFelixCSI moneymorning.com/2018/05/27/the-etf-apocalypse-could-lead-to-massive-stock-market-losses/amp/#referrer=https%3A%2F%2Fwww.google.com&_tf=From%20%251%24s
It’s not a real thing. I explained this a while ago. I should do another video on it. ruclips.net/video/ssuaVMbRtCo/видео.html
Is there a study that looks at profitable new industry indexes? so computers in the 80's, the internet in the early 2000's, I'm not sure when telephone companies, oil companies, and car companies were highly profitable, but if some where exceeding 20% net profit then they would count too. The main reason I thinking this is because everytime a new valuable industry is created new giants are created, at the same time, most people can see that these industries are hear to stay, though we may not know who the winner is gonna be
Let's answer this question by going straight to the extreme. If one stock was beating the market for 5 years, would you go 'all in' on it? Of course not.
I LOVE your videos!! Personal Capital is trying to sell me on their service telling me that my Vanguard portfolio is too heavily weighted in the top 5 largest US companies because onf their size and the individual stocks picked through their technology would give me better diversification. Thoughts?
It sounds like you're saying that only 4% of stocks have gains since 1926. You'd better unpack what you mean there because it doesn't make sense.
4% of stocks are responsible for all of the returns in excess of t bills.
_The implication is that slightly more than
four percent of the firms contained in the CRSP database collectively account for all of the net wealth creation in the U.S. stock market since 1926. Beyond these best-performing firms, an additional 9,579 firms (37.81%) created positive wealth over their lifetimes, just offset by the wealth destruction of the remaining 14,661 (57.88% of total) firms, so that the top 1,092 firms created the same wealth as the overall market. The 95.69% of firms outside the top group collectively generated dollar gains that matched those that would have accrued if the invested capital had earned one-month U.S. Treasury bill rates._
Source: papers.ssrn.com/sol3/papers.cfm?abstract_id=2900447
What is the point of a fund manager then? Why don’t all investors just buy etfs?
Great question. Chasing the dream of superior performance I suppose.
I heard someone say that some of my index funds suffer from di"worse"ification. :\
👍
Insightful
80/20 rule. 20% of the funds have the highest return, rest 80% are doing just okay. Pareto charting will give you a better visual.
I have to watch these videos in slow motion.
It's like being taught finance by a drunk when you do that :D
Might have to watch this one a second time to get it all...
I think you or someone else said that "investing for passive income in the future is unwise". Why, if you pre-'consider' 'inflation'? I think I need 3 million invested to live comfortably passive income for rest of my life.