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Guest Sierra

The Earth Is Flat (according To The State Of Nj)

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Guest Sierra

For those of you who monitor your public employer's level of respect for its employees may I urge you to get a heavy duty paper bag prior to reading the following:

 

Peace and Hope,

Joel L. Frank

====================================================================

DCP is the Deferred Compensation Plan for New Jersey's state employees under section 457(b) of the Internal Revenue Code. The following four funds along with their respective expense ratios were administered by the State of New Jersey's Divsion of Pensions and Benefits for the previous quarter century.

 

DCP Bond Fund 0.08%

DCP Equity Fund 0.08%

DCP Money Market Fund 0.08%

DCP Small Cap Equity Fund 0.08%

=====================================================================

 

The State has decided to farm out the administration of its DCP to Prudential Financial. The New Investment Options Effective January 2, 2006 along with their expense ratios are:

 

STABLE VALUE FIRST QUARTER 2006 – INITIAL CREDITING RATE

No lower than 4.60% (no expense ratio is given)

 

FIXED INCOME-DOMESTIC

Core Bond Enhanced Index 0.80%

Core Plus Bond / PIMCO Fund 0.95%

 

BALANCED

Vanguard Wellesley Income Fund 0.52%

 

LARGE CAP STOCK

Fidelity Contrafund 1.19%

Growth Fund of America 1.05%

chkis and Wiley Large Cap Value Fund 1.24%

Large Cap Blend Enhanced Index / QM Fund 0.89%

Large Cap Blend / Victory Fund 0.98%

Large Cap Growth / Turner Investment Partners Fund 1.05%

Large Cap Value / LSV Asset Management Fund 1.00%

Merrill Lynch Large Cap Core 0.93%

Vanguard Institutional Index Fund 0.25%

 

SMALL13/MID CAP STOCK

Alger Mid Cap Growth Fund 1.15%

Third Avenue Value Fund 1.22%

Mid Cap Blend Enhanced Index / QM Fund 0.94%

Mid Cap Value / CRM Fund 1.10%

Small Cap Growth / Granahan Fund 1.35%

Small Cap Value / Munder Capital Fund 1.35%

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Guest TR1982

This just goes to show that you can't please all the people all the time. I didn't look at every fund here but I know most of them and they are terrific funds with outstanding short and long term track records. I think it is ironic that some of you are only concerned with is expense ratios! If you had invested in the Growth Fund of America over the last 5, 10, 15 and 25 year periods you would have out performed the S&P 500 index and done it with less risk! What more could you ask for? This is the kind of response that makes a lot of people who look here shake their head in amazement. I know I am.

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This just goes to show that you can't please all the people all the time. I didn't look at every fund here but I know most of them and they are terrific funds with outstanding short and long term track records. I think it is ironic that some of you are only concerned with is expense ratios! If you had invested in the Growth Fund of America over the last 5, 10, 15 and 25 year periods you would have out performed the S&P 500 index and done it with less risk! What more could you ask for? This is the kind of response that makes a lot of people who look here shake their head in amazement. I know I am.

 

 

And how are you able to predict that such funds will have the same performance in the future?

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TR,

Yep, all you have to do is provide a guarantee of future returns and I am in. We have said this before TR: Past performance is absolutely worthless information. AF has terrific performance IN THE PAST but the huge commissions add considerable risk. VG and TC are also terrific performers IN THE PAST, with the guarantee of low fees by Vanguard and TC reduces risk significantly and that is what makes me invest in them.

Steve

 

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Guest TR1982

Well, I'm not going to get dragged into this debate again with you all. If you want to invest all your money in index funds, go right ahead. I just think it's ironic that you keep saying the same things again and again, and funds like this keep putting up the numbers year after year after year. I guess all their shareholders are stupid fools and should have invested their money in index funds. I'm sure glad I didn't follow your advice. I would be a lot poorer today if I had. But then, I'm guess I'm stupid because I didn't follow your sage advice.:)

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Well, I'm not going to get dragged into this debate again with you all. If you want to invest all your money in index funds, go right ahead. I just think it's ironic that you keep saying the same things again and again, and funds like this keep putting up the numbers year after year after year. I guess all their shareholders are stupid fools and should have invested their money in index funds. I'm sure glad I didn't follow your advice. I would be a lot poorer today if I had. But then, I'm guess I'm stupid because I didn't follow your sage advice.:)

 

 

TR,

 

I will take it as a compliment that I keep emphasizing some of the same things like:

 

1) the importance of low expense ratios.

2) the folly of using past performance as a prediction of future results.

3) the drag on returns that front end loads, back end loads, 12b-1 fees, and M&E fees cause.

 

Yep, I'll take it as a compliment that I'm consistent.

 

I don't think that shareholders of the funds that you sell are stupid, nor are you, obviously. I do question whether they are aware of #1-3 above, however.

 

As for your point that some funds keep putting up the numbers year after year after year: You are probably referring to some of the value-oriented American Funds. Yes, they have done quite well, in large part because value stocks have been outperforming. When the worm turns, however, and growth funds take off, those funds will tend to underperform. Will you be able to advise your clients ahead of time to make the switch?

 

 

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Guest TR1982

"As for your point that some funds keep putting up the numbers year after year after year: You are probably referring to some of the value-oriented American Funds. Yes, they have done quite well, in large part because value stocks have been outperforming. When the worm turns, however, and growth funds take off, those funds will tend to underperform. Will you be able to advise your clients ahead of time to make the switch?"

 

I am little confused. If most asset classes and markets move, on average, in 5-7 year cycles, when is this "turn" you are referring to going to happen? Unless you couldn't understand what I was saying, let me say it again: The Growth Fund of America has beaten the S&P 500 index for the trailing 5, 10, 15, and 25 year periods. I guess there is some market cycle you know about that the rest of us don't. I'm sure glad all their shareholders didn't wait until the market "turned" as you suggested. How about the sage advice so many index proponents give us of staying invested? I guess that doesn't apply here?

 

And, BTW, GFAA shareholders have beaten the index even when they paid the highest sales charge over the years. But they were just stupid sheep and didn't know any better. Get real.

 

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I am little confused. If most asset classes and markets move, on average, in 5-7 year cycles, when is this "turn" you are referring to going to happen? Unless you couldn't understand what I was saying, let me say it again: The Growth Fund of America has beaten the S&P 500 index for the trailing 5, 10, 15, and 25 year periods. I guess there is some market cycle you know about that the rest of us don't. I'm sure glad all their shareholders didn't wait until the market "turned" as you suggested. How about the sage advice so many index proponents give us of staying invested? I guess that doesn't apply here?

 

And, BTW, GFAA shareholders have beaten the index even when they paid the highest sales charge over the years. But they were just stupid sheep and didn't know any better. Get real.

 

TR,

 

I have absolutely no idea when the "turn" will occur. Nor do I care. I don't try to time market cycles. I try to stay invested across all asset classes so that these twists and turns even out in the long run. I have certainly never advocated "waiting until the market turned," as you suggested. I have no idea where you got that idea.

 

I'm not particularly dense, so yes, I do understand what you are saying: GFA has had superior returns over those periods that you cited. I simply disagree with the conclusion that you are drawing from that information, namely, that folks should invest in that fund. I spent way too much time in the past trying to figure out which funds will outperform in the future, only to be consistently disappointed. You tell folks that the sales charges won't really matter; when investors come to this site, they see a different point of view.

 

You are the one referring to GFA shareholders as stupid sheep, not me. I have never thought of them as such. Perhaps you have.

 

 

 

 

 

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TR.........Your comment is typical of a sales person asking people to invest with them today. They find very positive historical date of one fund that they swear they knew about and had invested in, and could have advised the customer to invest in. By inference they are saying that they could pick a fund that will beat the index now.

 

As we tried to explain to you time and time again, only a very small minority of active funds beat a low cost index fund over time mainly within statistical chance. Since an index is the average of all funds at a significantly lower annual expense, the drag on active funds is too large for them to compete over time.

 

TR, you can tell your stories to the ignorant invester. It's not going to work here.

 

Ira

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Guest Sierra

TR: Let's assume each and every fund is ranked number one in its class. The question is: why didn't the state of New Jersey with it enormous buying power negotiate much, much lower expense ratios? Why did the state agree to a retail pricing structure when they could have gotten these funds at wholesale? Please note that the asset allocation program is comprised of 8 funds with 6 of them sporting expense ratios of 1.00 percent or more. The least expensive fund the Vanguard Equity Index (0.25 percent) is NOT part of the asset allocation program called GoalMaker.

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Guest TR1982

"Yes, they have done quite well, in large part because value stocks have been outperforming. When the worm turns, however, and growth funds take off, those funds will tend to underperform. Will you be able to advise your clients ahead of time to make the switch?"

 

"I have absolutely no idea when the "turn" will occur. Nor do I care. I don't try to time market cycles. I try to stay invested across all asset classes so that these twists and turns even out in the long run. I have certainly never advocated "waiting until the market turned," as you suggested. I have no idea where you got that idea."

 

I am totally confused. You said in the first email "when the worm turns and growth funds take off" and then you say "I have certainly never advocated waiting until the market turned" I have NO idea what you are talking about. All I said was that the fund had outperformed the S&P 500 index over the last 5, 10, 15, and 25 year time periods.

 

I just get tired of people here saying that we can't predict future performance, DUH, we KNOW that. That doesn't mean that we can't find investment managers who have a good track record and are worth investing money with. When you have a chance go look at the investment managers for some of the largest endowments in the world. Many of them consistently use investment managers that don't just index. That's where the Kool Aid mentality here about indexing gets old. Plenty of pension funds and endowments use active managers all the time. THERE MUST BE A REASON. Go find it and you'll know what I am talking about it. Remember, knowledge is power and freedom.

 

"TR.........Your comment is typical of a sales person asking people to invest with them today. They find very positive historical date of one fund that they swear they knew about and had invested in, and could have advised the customer to invest in. By inference they are saying that they could pick a fund that will beat the index now."

 

So Ira, is the New Jersey Board of Pensions made up of "sales person asking people to invest with them today"? How cynical. So I guess your approach is to say "don't trust anybody who doesn't recommend low cost index funds from Vanguard". How amusing. BTW, I've never sold anyone here anything and don't want to. Why do you keep suggesting that I am trying to sell you something? I think you are trying to sell me something. I think you work for Vanguard. Do you live in Valley Forge? Are you related to John Bogle? Maybe he's your cousin.

 

 

 

TR: Let's assume each and every fund is ranked number one in its class. The question is: why didn't the state of New Jersey with it enormous buying power negotiate much, much lower expense ratios? Why did the state agree to a retail pricing structure when they could have gotten these funds at wholesale? Please note that the asset allocation program is comprised of 8 funds with 6 of them sporting expense ratios of 1.00 percent or more. The least expensive fund the Vanguard Equity Index (0.25 percent) is NOT part of the asset allocation program called GoalMaker.

 

 

Now, Sierra, you are right on the money here. It's a great question and deserving an answer. Somebody is getting payola on the Growth Fund of America, because the expense ratio on A shares is around .66%. But that question has nothing to do with the fund companies and everything to do with the state of NJ. Given the amount of graft and corruption present in NJ over the last 5-10 years, it wouldn't surprise me if they hired Joey Buttafuco to manage their money market fund.

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"Yes, they have done quite well, in large part because value stocks have been outperforming. When the worm turns, however, and growth funds take off, those funds will tend to underperform. Will you be able to advise your clients ahead of time to make the switch?"

 

"I have absolutely no idea when the "turn" will occur. Nor do I care. I don't try to time market cycles. I try to stay invested across all asset classes so that these twists and turns even out in the long run. I have certainly never advocated "waiting until the market turned," as you suggested. I have no idea where you got that idea."

 

I am totally confused. You said in the first email "when the worm turns and growth funds take off" and then you say "I have certainly never advocated waiting until the market turned" I have NO idea what you are talking about. All I said was that the fund had outperformed the S&P 500 index over the last 5, 10, 15, and 25 year time periods.

 

I just get tired of people here saying that we can't predict future performance, DUH, we KNOW that. That doesn't mean that we can't find investment managers who have a good track record and are worth investing money with. When you have a chance go look at the investment managers for some of the largest endowments in the world. Many of them consistently use investment managers that don't just index. That's where the Kool Aid mentality here about indexing gets old. Plenty of pension funds and endowments use active managers all the time. THERE MUST BE A REASON. Go find it and you'll know what I am talking about it. Remember, knowledge is power and freedom.

 

 

Boy, talk about being confused! OK, here is what I was saying:

 

1) Value funds have had a nice run.

2) Eventually, growth funds will have a nice run.

3) When #2 occurs, the value-oriented American Funds (e.g., ICA, Wash.) that many agents sell may falter.

 

By no means was I saying, or even hinting, that I am planning on timing the arrival of #2. I have no idea how you came to that conclusion. My asset allocation does not change based upon the latest trends.

 

The reason that endowments use some active management is that they feel it can add value to their portfolios. If the endowments are correct in this assumption, that is not particularly useful to me inasmuch as I do not have access to all of their information, resources and expertise. If the endowments are incorrect, then I will do just fine with passive management.

 

I am not seeking market-breaking returns. I am quite happy to match market returns. If I am successful, this will put me ahead of a large percentage of actively-managed funds. That will make me very content.

 

Tell you what: you go ahead and advise your clients that they can beat market returns by investing in the funds that you have suggested. I'll continue to point out the difficulties that they will have in doing so. We can agree to disagree.

 

 

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Guest TR1982

 

"Yes, they have done quite well, in large part because value stocks have been outperforming. When the worm turns, however, and growth funds take off, those funds will tend to underperform. Will you be able to advise your clients ahead of time to make the switch?"

 

"I have absolutely no idea when the "turn" will occur. Nor do I care. I don't try to time market cycles. I try to stay invested across all asset classes so that these twists and turns even out in the long run. I have certainly never advocated "waiting until the market turned," as you suggested. I have no idea where you got that idea."

 

I am totally confused. You said in the first email "when the worm turns and growth funds take off" and then you say "I have certainly never advocated waiting until the market turned" I have NO idea what you are talking about. All I said was that the fund had outperformed the S&P 500 index over the last 5, 10, 15, and 25 year time periods.

 

 

Boy, talk about being confused! OK, here is what I was saying:

 

1) Value funds have had a nice run.

2) Eventually, growth funds will have a nice run.

3) When #2 occurs, the value-oriented American Funds (e.g., ICA, Wash.) that many agents sell may falter.

 

By no means was I saying, or even hinting, that I am planning on timing the arrival of #2. I have no idea how you came to that conclusion. My asset allocation does not change based upon the latest trends.

 

The reason that endowments use some active management is that they feel it can add value to their portfolios. If the endowments are correct in this assumption, that is not particularly useful to me inasmuch as I do not have access to all of their information, resources and expertise. If the endowments are incorrect, then I will do just fine with passive management.

 

I am not seeking market-breaking returns. I am quite happy to match market returns. If I am successful, this will put me ahead of a large percentage of actively-managed funds. That will make me very content.

 

Tell you what: you go ahead and advise your clients that they can beat market returns by investing in the funds that you have suggested. I'll continue to point out the difficulties that they will have in doing so. We can agree to disagree.

 

 

We can certainly agree to disagree. You are suggesting that value funds have had a 25 year run? BTW, GFA may have somewhat of a value tilt but it is not considered a value fund. I don't know where you "get" your information, but value funds haven't been going through a 25 year bull market cycle. And lastly, I do not promise or advise my clients that they can beat market returns. I simply acknowledge what many here will not: indexing in every asset class has not proven to be a winning strategy all the time, either from a performance point of view or a risk management point of view. This information is well documented in the academic and investment communities and I have posted it on this board before. I have an OBLIGATION as an advisor and fiduciary to make sure that every possible avenue is utilized to help clients reach their goals. Passive management might work well in some situations. To suggest that it is the holy grail of investing is tempting but foolish. This has been tried many times and history is littered with the names of people who thought they had found "the way".

 

With kindest regards,

 

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TR,

 

1) I am well aware that GFA is a growth fund, and not a value fund.

 

2) I did not imply or state anywhere that value has had a 25 year run, for Pete's sake. Value has done well in the past several years, especially during the market decline of 2000-2002.

 

3) "Indexing in every asset class has not proven to be a winning strategy all the time ..." It depends upon how you define winning. If, over the long haul, I match market returns across several different asset classes in a mix that is appropriate for my risk tolerance, I consider myself to have won.

 

4) "...either from a performance point of view or a risk management point of view." I would suggest that the use of index funds and Modern Portfolio Theory provide an efficient method of managing both.

 

5) "I have an OBLIGATION as an advisor and fiduciary to make sure that every possible avenue is utilized to help clients reach their goals." Fair enough. In that obligation, do you explain to your clients how a mix of index funds from several asset classes can enhance performance and mitigate risk? Is that an avenue that you explore with your clients?

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