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febarnes

Open Platform Line-up

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Our school system will be leaving Valic and going to a new vendor with a mutual fund open platform. I would appreciate recommendations for the fund line-up.

 

I also want to thank the members of this board for their insight, advice and encouragement in helping bring about a new day for the employees of my system. It has been difficult getting to this point, but the change is worth it.

Thanks, from the bottom of my heart!!!

Fe

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I am not sure what your words mean. Could you define open platform and fund-line up?

 

If you are asking what I think you are asking you should push for Vanguard, Fidelity or T.Rowe Price but not

through a middleman but directly with the companies mentioned. There is a difference because if you add any intermediary they more likely than not charge you higher fees.

 

American Funds would also be a good choice except for the fact that you will have to deal with an intermediary and aslo pay a load so I'm not sure you would want to do that

 

 

I think the line-up choices are pretty much decided upon by the company as to what is offered within the 403b.

 

 

Tony

 

 

 

 

Our school system will be leaving Valic and going to a new vendor with a mutual fund open platform. I would appreciate recommendations for the fund line-up.

 

I also want to thank the members of this board for their insight, advice and encouragement in helping bring about a new day for the employees of my system. It has been difficult getting to this point, but the change is worth it.

Thanks, from the bottom of my heart!!!

Fe

 

 

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I am not sure what your words mean. Could you define open platform and fund-line up?

 

Tony,

We are allowed to select specific funds of our choice as a core line-up. I made a concerted effort to eliminate the middle man, but because of record keeping issues was unable to do so. The revenue cost are minimal. We were offered all institutional funds such as Vanguard or Fidelity. In essence we get to select the funds in which we wish to invest. Could you give me 20 funds by name you would place in an investment lineup?

 

If you are asking what I think you are asking you should push for Vanguard, Fidelity or T.Rowe Price but not

through a middleman but directly with the companies mentioned. There is a difference because if you add any intermediary they more likely than not charge you higher fees.

 

American Funds would also be a good choice except for the fact that you will have to deal with an intermediary and aslo pay a load so I'm not sure you would want to do that

 

 

I think the line-up choices are pretty much decided upon by the company as to what is offered within the 403b.

 

 

Tony

 

 

 

 

 

 

Our school system will be leaving Valic and going to a new vendor with a mutual fund open platform. I would appreciate recommendations for the fund line-up.

 

I also want to thank the members of this board for their insight, advice and encouragement in helping bring about a new day for the employees of my system. It has been difficult getting to this point, but the change is worth it.

Thanks, from the bottom of my heart!!!

Fe

 

 

 

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Tony,

Our system will get to choose the funds in which we invest. We can choose all institutional funds such as Vanguard or Fidelity or pick randomly from various fund families. Would you give me 20 funds of your choosing for a core lienup?

 

I made a concerted effort to eliminate the middle man. However, because of record keeping, I was unable to do so. I made personal calls to Fidelity and Vanguard. The plan document was the problem. The costs of the plan are negotiable. The revenue sharing fees are nominal. The plan is not perfect, but it is the best one could do working with a committee of 10 people. The consultant will work with the committee to get the best possible price and lineup for our employees.

fe

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Has the group already chosen a TPA? If so, the choice will be limited to what the TPA offers to plans of your plan's size. This can be a affected by marketing agreements with fund families, fund family size standards, etc. The problem is that open platform has no defined meaning and so is used by lots of TPAs where the choices are not entirely open.

 

I use open only when the TPA has access to all funds traded over NSCC. This is some number above 15,000 funds, and ought to make anybody happy with the list.

 

Tom Geer

 

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Has the group already chosen a TPA? If so, the choice will be limited to what the TPA offers to plans of your plan's size. This can be a affected by marketing agreements with fund families, fund family size standards, etc. The problem is that open platform has no defined meaning and so is used by lots of TPAs where the choices are not entirely open.

 

I use open only when the TPA has access to all funds traded over NSCC. This is some number above 15,000 funds, and ought to make anybody happy with the list.

 

Tom Geer

 

Geertom,

No, we have two candidates.

Both Wachovia and Lincoln have informed us that we may choose any funds we want. I believe they they will be held accountable for this statement or they will not get the business.

I am reviewing a current proposed list by the consultant. I just wanted to get the expert advice from some veterans on this board. If I did not respect the opinions of the members of this board, I would not ask the question.

 

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I am working on a list of great funds for you from multiple fund families. Do you also want index funds included?

 

I wonder what you will be charged for those choices.

 

 

 

 

Tony,

Our system will get to choose the funds in which we invest. We can choose all institutional funds such as Vanguard or Fidelity or pick randomly from various fund families. Would you give me 20 funds of your choosing for a core lienup?

 

I made a concerted effort to eliminate the middle man. However, because of record keeping, I was unable to do so. I made personal calls to Fidelity and Vanguard. The plan document was the problem. The costs of the plan are negotiable. The revenue sharing fees are nominal. The plan is not perfect, but it is the best one could do working with a committee of 10 people. The consultant will work with the committee to get the best possible price and lineup for our employees.

fe

 

 

 

 

 

Also

 

Please check out last month's issue of Consumer reports. They have several good funds in each assett

class that have been super performers. I own some of them they mentioned and they have been right on

in their recommendations.

 

 

 

I am working on a list of great funds for you from multiple fund families. Do you also want index funds included?

 

I wonder what you will be charged for those choices.

 

Tony

 

 

Tony,

Our system will get to choose the funds in which we invest. We can choose all institutional funds such as Vanguard or Fidelity or pick randomly from various fund families. Would you give me 20 funds of your choosing for a core lienup?

 

I made a concerted effort to eliminate the middle man. However, because of record keeping, I was unable to do so. I made personal calls to Fidelity and Vanguard. The plan document was the problem. The costs of the plan are negotiable. The revenue sharing fees are nominal. The plan is not perfect, but it is the best one could do working with a committee of 10 people. The consultant will work with the committee to get the best possible price and lineup for our employees.

fe

 

 

 

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I will probably catch some disenting voices on this but here are some funds I would suggest.

 

Large cap-Weitz Value, Vanguard S&P 500, Fidelity Contra Fund, Vanguard Growth Index, Fidelity Dividend Growth, Clipper Fund, American Amcap, American Washington Mutual Investors, Fidelity Puritan (Balanced Fund) Dodge& Cox Fund, Vanguard Value Index

 

Mid-Cap-Fidelity Low Price Stock, Vanguard Capital Opportunity, Columbia Acorn Fund, Vanguard Mid Cap Index. Ariel Fund, Vanguard Selected value (columbia acorn fund which I own in z shares has beaten its index for over ten years)

 

 

Small Cap-Vanguard Explorer, Vanguard Small Cap Value Index, Vanguard Small Cap Index

 

 

International:Vanguard Global Equity, Vanguard Total International Index, American Capital Income, American Capital World Growth and Income, Harbor International, Dodge& Cox International, Vanguard

International Discovery.

 

Reitt-Vanguard Reitt Index

 

Bond- Harbor Bond Fund, Vanguard TIPS, Vangurd Total Bond Index

 

 

 

These are all good low risk low cost funds. The managed are a bit more expensive.

 

This little excercise just reminds me that you guys could do just fine owning one fund family and my choice would be Vanguard.

 

let me know what you think

 

Tony

 

 

 

 

Tony,

Our system will get to choose the funds in which we invest. We can choose all institutional funds such as Vanguard or Fidelity or pick randomly from various fund families. Would you give me 20 funds of your choosing for a core lienup?

 

I made a concerted effort to eliminate the middle man. However, because of record keeping, I was unable to do so. I made personal calls to Fidelity and Vanguard. The plan document was the problem. The costs of the plan are negotiable. The revenue sharing fees are nominal. The plan is not perfect, but it is the best one could do working with a committee of 10 people. The consultant will work with the committee to get the best possible price and lineup for our employees.

fe

 

 

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Tom, I beleive that the key question is, What are the fees that the new provider will charge you?

 

Tony, Studies have shown that past performance will not indicate future performance. Fund cost is what we can control. The books that we have recommended to you show this. Now, if you have read any of these books, why do you disagree with the analyses shown, or do you still need to read these books?

 

Please tell us why you feel that you can pick out funds that will beat their benchmarks, and advise the same to other posters.

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IRA,

 

I don't follow anyone's strick gospel but I think cost is just one thing you should look. The funds I mentioned

are good well managed funds that have in fact defied the odds and have beaten the indexes in their category over long periods of time.

 

Studies do show that past performance will not indicate future performance. That being said, the statement also applies to index funds doesn't it ?

 

He asked for some funds and I gave him some.

 

As I have indicated before I am 100% indexing now but I own managed funds. I 've dumped the poor performers and have keept the good ones. There are some good managers out there!!

 

This debate can go on forever if we let it. The fact of the matter is not all managed funds are bad but many

are. I see nothing wrong with having a mix of managed and index funds.

 

You seem stuck on a strict index doctrine. To me this limits you to inside the box thinking.

 

 

 

Best wishes

 

Tony

 

P.S. You guys were able to convince me to start indexing. Maybe I can convince some of you to see that not all managed funds are bad choices

 

 

 

 

 

Tom, I beleive that the key question is, What are the fees that the new provider will charge you?

 

Tony, Studies have shown that past performance will not indicate future performance. Fund cost is what we can control. The books that we have recommended to you show this. Now, if you have read any of these books, why do you disagree with the analyses shown, or do you still need to read these books?

 

Please tell us why you feel that you can pick out funds that will beat their benchmarks, and advise the same to other posters.

 

 

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I will probably catch some disenting voices on this but here are some funds I would suggest.

 

Large cap-Weitz Value, Vanguard S&P 500, Fidelity Contra Fund, Vanguard Growth Index, Fidelity Dividend Growth, Clipper Fund, American Amcap, American Washington Mutual Investors, Fidelity Puritan (Balanced Fund) Dodge& Cox Fund, Vanguard Value Index

 

Mid-Cap-Fidelity Low Price Stock, Vanguard Capital Opportunity, Columbia Acorn Fund, Vanguard Mid Cap Index. Ariel Fund, Vanguard Selected value (columbia acorn fund which I own in z shares has beaten its index for over ten years)

 

 

Small Cap-Vanguard Explorer, Vanguard Small Cap Value Index, Vanguard Small Cap Index

 

 

International:Vanguard Global Equity, Vanguard Total International Index, American Capital Income, American Capital World Growth and Income, Harbor International, Dodge& Cox International, Vanguard

International Discovery.

 

Reitt-Vanguard Reitt Index

 

Bond- Harbor Bond Fund, Vanguard TIPS, Vangurd Total Bond Index

 

 

 

These are all good low risk low cost funds. The managed are a bit more expensive.

 

This little excercise just reminds me that you guys could do just fine owning one fund family and my choice would be Vanguard.

 

let me know what you think

 

Tony

 

Tony,

 

Thanks for the list. I like many of the choices. In fact, some of them I will be submitting for consideration for our plan. I made every attempt to get Vanguard as our vendor. I called the small business manager at Vanguard to find out why there was a problem. It boils down to the record keeping, vesting schedules and loan provisions. I asked that our plan document be changed so we could get Vanguard. Unfortunatley, my plea was unsuccessful. I will continue to question and press for lower cost no matter what they are. If I am not persuaded the plan is in the best interest of the teachers, I wll not support it's adoption.

 

 

 

Tony,

Our system will get to choose the funds in which we invest. We can choose all institutional funds such as Vanguard or Fidelity or pick randomly from various fund families. Would you give me 20 funds of your choosing for a core lienup?

 

I made a concerted effort to eliminate the middle man. However, because of record keeping, I was unable to do so. I made personal calls to Fidelity and Vanguard. The plan document was the problem. The costs of the plan are negotiable. The revenue sharing fees are nominal. The plan is not perfect, but it is the best one could do working with a committee of 10 people. The consultant will work with the committee to get the best possible price and lineup for our employees.

fe

 

 

 

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Tony, I beleive that you are one of the good guys, and mean well with your posts touting managed funds, however I also believe that your knowledge of why index funds at signicantly less cost than the typical managed funds outperform. Since I beleive that you did not read any of the books that we referred you to, here are some points that you may wish to consider.

 

 

Studies do show that past performance will not indicate future performance. That being said, the statement also applies to index funds doesn't it ?

 

Actually not, the index fund is the benchmark, and it's performance is the average of the market that competes within the particular benchmark, however the expenses for the index is at least one percent less than total of managed funds each year; over say ten years, this is at least ten percent difference. The total of managed funds in each category are at a ten percent or more disadvantage--there is a drag on investments. Now managed funds hire competent fund managers and research capability, and they are in competion with each other. The more money that they might spend to be superior to other funds increases the fund costs, making the total market less indexes more expensive and less able to compete with index funds over time.

 

John Bogle, Larry Swedroe among other have shown that over long period of time that a very small percent of managed funds have beaten the simple low priced index and can be attributed to statistical chance.

 

Once again past performance is not an indicator of future performance. So for example, one of the funds that you mentioned Fidelity Low Price funds is in fact has done well, however this fund was originally a value small cap fund with a signicantly lower asset base and is now a giant fund in I think mid cap blend. If you look at it's asset allocation it is the same as Fidelity extended market index (except for a percent in foreign stock) The index which has the same asset allocation in domestic stocks expense ratio is 0.1 signicantly less than the cost for the Low Price fund. The manager has been with the low price fund for a while--will he continue with the fund in the future? Have those who have gone into the fund because of past performance make it harder to manage?

 

 

You seem stuck on a strict index doctrine. To me this limits you to inside the box thinking

 

True I invest in index funds where available except in cases where managed funds are inexpensive such as Vanguard manged bond funds. True I invest where studies, which I have read and can site if you wish, have shown that my return on investment will be greatest over time. Call it "inside the box thinking" if you wish, I call it successful investing based on education.

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Fe

 

It just amazes me how they make you jump through hoops of fire just to get some decent investment choices. I was able to get Vanguard in our school system directly and with very little complication and with no intermediaries to steal our money.

 

The challenge remains getting teachers to understand the difference between bad invest ments and good investments.

 

 

Ira,

 

First I did not mean to post a new post on this subject. It was an error. I apologize for that.

 

On your other comments I appreciate being called a good guy. I am not an expert and I do believe in the wisdom of Indexing. You are correct that managed funds like Low Price do get too big and tend to drift into

the next category of assett class and that if the current manager leaves that could be a bad thing.

 

I just wish you could better understand were I am coming from. I want others who are wrapped up in bad choices to move to better choices. Sometimes that means moving from an annuity to perhaps a managed

fund that is low cost and decent performing or an index fund.

 

AS I have mentioned I have invested in mostly managed funds but now am investing 100% in Indexing.

We are all in different places in our knowledge and experience base. I just think we need to at very least admit thay their are some good managed funds worth keeping.

 

I would however like you to address the criticism that index funds can be more risky when the economy faces a downturn.

 

 

 

 

 

 

I will probably catch some disenting voices on this but here are some funds I would suggest.

 

Large cap-Weitz Value, Vanguard S&P 500, Fidelity Contra Fund, Vanguard Growth Index, Fidelity Dividend Growth, Clipper Fund, American Amcap, American Washington Mutual Investors, Fidelity Puritan (Balanced Fund) Dodge& Cox Fund, Vanguard Value Index

 

Mid-Cap-Fidelity Low Price Stock, Vanguard Capital Opportunity, Columbia Acorn Fund, Vanguard Mid Cap Index. Ariel Fund, Vanguard Selected value (columbia acorn fund which I own in z shares has beaten its index for over ten years)

 

 

Small Cap-Vanguard Explorer, Vanguard Small Cap Value Index, Vanguard Small Cap Index

 

 

International:Vanguard Global Equity, Vanguard Total International Index, American Capital Income, American Capital World Growth and Income, Harbor International, Dodge& Cox International, Vanguard

International Discovery.

 

Reitt-Vanguard Reitt Index

 

Bond- Harbor Bond Fund, Vanguard TIPS, Vangurd Total Bond Index

 

 

 

These are all good low risk low cost funds. The managed are a bit more expensive.

 

This little excercise just reminds me that you guys could do just fine owning one fund family and my choice would be Vanguard.

 

let me know what you think

 

Tony

 

Tony,

 

Thanks for the list. I like many of the choices. In fact, some of them I will be submitting for consideration for our plan. I made every attempt to get Vanguard as our vendor. I called the small business manager at Vanguard to find out why there was a problem. It boils down to the record keeping, vesting schedules and loan provisions. I asked that our plan document be changed so we could get Vanguard. Unfortunatley, my plea was unsuccessful. I will continue to question and press for lower cost no matter what they are. If I am not persuaded the plan is in the best interest of the teachers, I wll not support it's adoption.

 

 

 

Tony,

Our system will get to choose the funds in which we invest. We can choose all institutional funds such as Vanguard or Fidelity or pick randomly from various fund families. Would you give me 20 funds of your choosing for a core lienup?

 

I made a concerted effort to eliminate the middle man. However, because of record keeping, I was unable to do so. I made personal calls to Fidelity and Vanguard. The plan document was the problem. The costs of the plan are negotiable. The revenue sharing fees are nominal. The plan is not perfect, but it is the best one could do working with a committee of 10 people. The consultant will work with the committee to get the best possible price and lineup for our employees.

fe

 

 

 

 

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Tony;

 

A couple comments:

 

1. I believe several of the funds you suggested are closed to new investors. Namely Dodge & Cox Stock, Fidelity Contrafund and Vanguard Capital Opportunities. If I am mis-informed, please correct me. Purchase constraints on actively managed funds are another factor in favor of indexing.

 

2. The evidence supports the belief that indexing is the most efficient strategy for many asset classes - as the index funds almost keep up with the indexes. (Let's not forget even indexes have small operating costs)

 

3. The key to indexing is low cost & minimal tracking error. Tracking error is defined to be the dirrerence in return/risk between the actual index fund and the underlying hypothetical index (which index is the correct index??). High cost & other mis-steps translate to large tracking error. Even Vanguard has had difficulty with this from time to time. Vanguard's biggest problems have come from changing to the MSCI Index Series for construction of many of its index funds and from simulated index portfolios (Total Bond Market Index Fund - in the past). These are not permanent problems but they do happen from time to time.

 

4. Active Management has a limited place for investors (even IRA admits to limited use of active management) who do their homework.

 

 

Cheers,

Danc

 

 

 

 

 

 

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I would however like you to address the criticism that index funds can be more risky when the economy faces a downturn

 

When you say more risky in an economic downturn, I believe that you are referring to index funds versus managed funds.

 

A basic premise is that the market is fairly valued , and one does not have the ability to market time. Now adays with mass communication, people instanteously know what is happening and take immediate (re)action. UNless someone has inside information which is illegal, they do not have more knowledge than the consensus of the market.

 

So one does not know when the market will experience a market downturn. There are those who quote historical data, saying that they pulled out of the market back when the market was going down, or bought an investment that experienced very good gains when the market was going up. This is hype based on greed.

 

I know that I read something, I'm not sure where; but I think morningstar which showed that index funds did better than managed funds during economic downturns. Basically, managefunds go into defensive positions after the downturn. The market timing that they do is inaccurate. The reverse happens when the market goes up. There are some who are out of the market now. I know someone who believes in market timing who went out of the market last year.

 

 

Sometimes that means moving from an annuity to perhaps a managed

fund that is low cost and decent performing or an index fund.

.

 

Studies have indicated that the lower the cost of a fund (including managed funds) the higher the performance over time.

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