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Guest TR1982

Sierra,

You know what? You are right and I am wrong. If there's one thing I know I'm right about it's that you are always right. BTW, go ahead from this point forward and know that whatever you post I will acknowledge as absolutely correct. No need for me to even reply. Have a great day.

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Guest TR1982

Dan,

This is from the September 2002 issue of the Journal of Financial Planning. It is written by the following:

 

Rich Fortin, Ph.D., and Stuart Michelson, Ph.D.

 

Rich Fortin, Ph.D., is a professor of finance at New Mexico State University in Las Cruces, New Mexico. He has written articles for the Journal of Financial and Quantitative Analysis; Journal of Financial Research; Journal of Investing; Journal of Financial Planning; Financial Analysts Journal; and the Journal of Small Business Finance.

 

Stuart Michelson, Ph.D., is the Roland & Sarah George Professor of Finance at Stetson University in DeLand, Florida. He has written articles for the Journal of Business, Finance, and Accounting; Financial Services Review; Journal of Investing; Journal of Financial Planning; British Accounting Review; and the Journal of Financial Education.

 

The title is:

 

Indexing Versus Active Mutual Fund Management

 

I have copied the summary of the article here:

 

Conclusion

 

"This paper’s primary contribution is in providing more conclusive evidence on the debate on the benefits of mutual fund indexing and whether actively managed funds perform as well as index funds. An important feature of this research is that we analyze the results for both total return and after-tax total return. We find that, on average, index funds outperform actively managed funds for most equity and all bond fund categories on both a before-tax and after-tax basis. However, actively managed Small Company Equity (SCE) funds and International Stock (IS) funds significantly outperform the index over most of the study period. Managers of these funds appear to be able to invest to take advantage of mispricing in these presumably less efficient markets. The nonparametric tests further reinforce these results. The Sign Test establishes that index funds outperform actively managed funds for all categories, except SCE and IS funds. The overall results should be viewed with caution, however, as there is evidence that actively managed funds outperform the index funds during periods when the economy is either going into or out of a recession. It appears that active fund management is better than index funds at guiding portfolios through rough times.

 

A number of caveats are also in order. First, this study does not consider either front or deferred loads, and the relative performance of index mutual funds versus actively managed load or no-load funds is an empirical question left unanswered by our study. Second, the methodology in this study does not take into account a risk/return trade-off. We only examined returns by category, and a number of funds with lower returns might actually have a better risk/return trade-off than the market because they have lower risk than the market. Third, our tests do not take into account persistence of fund superiority over the passive index fund. Any fund that consistently outperforms the market index tends to be averaged out in our cross-sectional methodology. There is a large body of literature in this area [see Zheng (1999)] and this study does not explicitly address this issue."

 

This article appeared in the same magazine in July 2004 and was written by Andrei Voicu. The summary is below:

 

Conclusion

 

"While we found no overall right or wrong answer to the active-versus-passive management debate, a myriad of valuable observations can be professionally considered.

 

While there are advantages and disadvantages to using both active and passive strategies, we now understand that this debate should not be taken out of the context of investors’ goals and objectives.

 

It is also important to keep in mind that the tactical allocation decision ultimately influences the decision between active and passive management. Finally, we have learned that, although passive strategies may have an edge in very efficient areas of the market, active strategies may have an edge in less efficient areas. Both strategies will continue to co-exist in the industry because their relationship is symbiotic."

 

 

I don't care where you are on this issue. I just am weary of people who act like this debate is over and their answer is the "right" one. It is clear from these studies, performed by academics, that indexing has many advantages but that active management still has a place in investing. Why do people on this board reject this? One of the things that I find bewildering about a lot of posts here is that they are given by people in education. Shouldn't people in this profession, more than others, value all the information and multiple points of view? Isn't it better to know all the facts rather than the ones that make you feel better or just support your point of view?

 

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Guest Sierra

Sierra,

You know what? You are right and I am wrong. If there's one thing I know I'm right about it's that you are always right. BTW, go ahead from this point forward and know that whatever you post I will acknowledge as absolutely correct. No need for me to even reply. Have a great day.

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

 

TR: My teddy bear:

 

 

Now, now calm down and stop getting so emotional. You only have to admit that you were wrong with your assertion that ME fees apply ONLY to the sub-accounts of variable annuities and NOT to the fixed account. That should not be too difficult for someone that has served in the financial services industry for 20 years with various credentials!

 

Peace and hope,

Joel

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TR,

The journal you site is bias. Of course, it will only publish articles supporting active management. Its editorial board is full of CFPs and financial brokers who have a stake in active management. Surprise surprise!

Nice try, but your "evidence" will go absolutely no where on this board.

 

Link to the journal of financial planning editorial board

 

Best wishes,

Steve

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TR,

The journal you site is bias. Of course, it will only publish articles supporting active management. Its editorial board is full of CFPs and financial brokers who have a stake in active management. Surprise surprise!

Nice try, but your "evidence" will go absolutely no where on this board.

 

<A HREF=http://www.fpanet.org/journal/about/review.cfm>Link to the journal of financial planning editorial board</A>

 

Best wishes,

Steve

 

Steve, this is just plain ridiculous. How can anyone on this board cite the work of John Bogle, who founded Vanguard, as an unbiased source, while out of the OTHER side of their mouths castigating an article written by a pair of PhD's for the Journal of Financial Planning?

 

Besides, if I understand TR correctly, he wasn't saying he was right and the "index" argument was wrong, merely that there was room for intelligent discussion of the subject. Ah yes, here it is: "I don't care where you are on this issue. I just am weary of people who act like this debate is over and their answer is the "right" one. It is clear from these studies, performed by academics, that indexing has many advantages but that active management still has a place in investing." But immediately we move to squash dissent. Utterly ridiculous.

 

Have you read the Journal of Financial Planning? Do you know for a fact that they "only publish articles supporting active management," as you assert?

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PS...might be nice to follow your own link to the editorial board of the Journal of Financial Planning. In addition to all the brokers who have such a huge stake in active management, you'll also find nearly a dozen PhD's.

 

And why the slam on CFP's all of a sudden? Do none of them support indexing? I've seen many people on this site and on this discussion board trip over themselves URGING people to see a CFP instead of a mere "salesman." Now they're no good either?

 

I guess as soon as a publication goes with an opinion that runs contrary to the no-load index fund Kool-Aid drinkers around here, everyone and everything associated with that publication is tainted too, huh?

 

A little bit of consistency would be nice.

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Guest TR1982
TR,

The journal you site is bias. Of course, it will only publish articles supporting active management. Its editorial board is full of CFPs and financial brokers who have a stake in active management. Surprise surprise!

Nice try, but your "evidence" will go absolutely no where on this board.

 

Link to the journal of financial planning editorial board

 

Best wishes,

Steve

FT,

This is what's sad about this discussion thread. People ask me to show them evidence of my assertions and then they reject it because of the source. I suppose these guys think the world is flat.

 

BTW, Dan Otter's source was Jonathan Clement, a WSJ reporter who has never done an academic study on anything in his life. In addition, Vanguard is probably one of the top 10 advertisers in the WSJ. Talk about bias and conflicts of interest.

 

Fellows, I am not going to respond to this thread anymore since I have made my case. I have nothing invested in my point of view and don't care what you think. I thought it might be helpful to have another point of view.

 

Regards,

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Apparently, TR, none of that matters, since Clement, Vanguard and the WSJ are all with Mr. Schullo on the side of the angels. Given Steve's gripes about those evil CFP's on the board of the Journal of Financial Planning, I'm left to sadly conclude that the One True Way really is self-education and no-load index investing. Professional advice is just always wrong.

 

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Guest TR1982

FT,

Thought you might want to see the process for submitting articles to the JFP.

 

"Initial Screening

 

* Financial planners, financial services professionals and academicians should submit articles or article ideas to Attn: Mary Corbin, Journal of Financial Planning, 4100 E. Mississippi Avenue, Suite 400, Denver, CO 80246. Send three hard copies of your article or e-mail your article as a Microsoft Word-attached document to mary.corbin@fpanet.org. We acknowledge receipt of all manuscripts.

 

* We will initially screen manuscripts for appropriateness and quality, and may suggest revisions. You will be notified as to whether your manuscript is being sent for peer review.

 

Peer Review

 

* Articles with merit will be reviewed by members of the Journal’s Editorial Review Board. The initial screening and peer-review process takes six to eight weeks. You will be notified as soon as we have received all reviews.

 

* Once we have received all manuscript reviews, we will let you know if we plan to publish your article. You will receive a letter of notification along with copies of the reviewer’s comments.

 

* While your manuscript is in the review process, we ask that you do not submit it to any other publication for consideration. The Journal of Financial Planning will not publish any articles that have been accepted or printed by other publications.

 

If your article has already been accepted for publication by the Journal, click here for a detailed outline of what we will need from you before publication."

 

Regards-

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Guest Sierra

Besides, if I understand TR correctly, he wasn't saying he was right and the "index" argument was wrong, merely that there was room for intelligent discussion of the subject. Ah yes, here it is: "I don't care where you are on this issue. I just am weary of people who act like this debate is over and their answer is the "right" one. It is clear from these studies, performed by academics, that indexing has many advantages but that active management still has a place in investing."

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

FT: Please post for us the intelligence exhibited by TR in my discussion with him/her concerning the ME fee and its application to fixed annuities.

 

Joel

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FT,

Thought you might want to see the process for submitting articles to the JFP.

 

"Initial Screening

 

* Financial planners, financial services professionals and academicians should submit articles or article ideas to Attn: Mary Corbin, Journal of Financial Planning, 4100 E. Mississippi Avenue, Suite 400, Denver, CO 80246. Send three hard copies of your article or e-mail your article as a Microsoft Word-attached document to mary.corbin@fpanet.org. We acknowledge receipt of all manuscripts.

 

* We will initially screen manuscripts for appropriateness and quality, and may suggest revisions. You will be notified as to whether your manuscript is being sent for peer review.

 

Peer Review

 

* Articles with merit will be reviewed by members of the Journal’s Editorial Review Board. The initial screening and peer-review process takes six to eight weeks. You will be notified as soon as we have received all reviews.

 

* Once we have received all manuscript reviews, we will let you know if we plan to publish your article. You will receive a letter of notification along with copies of the reviewer’s comments.

 

* While your manuscript is in the review process, we ask that you do not submit it to any other publication for consideration. The Journal of Financial Planning will not publish any articles that have been accepted or printed by other publications.

 

If your article has already been accepted for publication by the Journal, click here for a detailed outline of what we will need from you before publication."

 

Regards-

 

This is clearly a process rigged to promote active investing. Heh. [/sarcasm]

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Besides, if I understand TR correctly, he wasn't saying he was right and the "index" argument was wrong, merely that there was room for intelligent discussion of the subject. Ah yes, here it is: "I don't care where you are on this issue. I just am weary of people who act like this debate is over and their answer is the "right" one. It is clear from these studies, performed by academics, that indexing has many advantages but that active management still has a place in investing."

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

FT: Please post for us the intelligence exhibited by TR in my discussion with him/her concerning the ME fee and its application to fixed annuities.

 

Joel

 

As my comments should have made clear, my response was to the active vs. indexing argument, in which you were holding forth that there was only one right way to do it. I believe there is room for both approaches to succeed.

 

To respond to your question directly, ScottyD found enough intelligence in TR's post to conclude that you were BOTH right. Oops, but ScottyD is one of those evil, can't-be-trusted CFP's, isn't he? BIAS! Never mind!

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Guest TR1982
Besides, if I understand TR correctly, he wasn't saying he was right and the "index" argument was wrong, merely that there was room for intelligent discussion of the subject. Ah yes, here it is: "I don't care where you are on this issue. I just am weary of people who act like this debate is over and their answer is the "right" one. It is clear from these studies, performed by academics, that indexing has many advantages but that active management still has a place in investing."

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

FT: Please post for us the intelligence exhibited by TR in my discussion with him/her concerning the ME fee and its application to fixed annuities.

 

Joel

 

Sierra,

 

Since I acknowleged to you that you were right on the M&E issue, I don't understand why you are now criticizing me!

 

Secondly, I took your sage advice and emailed one of the top actuaries at Genworth (formerly GE Financial Services) which is one of the largest producers of fixed and variable annuities in the world and I asked him your question:

 

"Is there a specific mortality & expense fee in a fixed annuity offered by Genworth? I don't believe there is an M&E fee on a fixed annuity but I am trying to verify from an actuary who works with these products."

 

This is his response:

 

"Fixed annuities (non-variable)do not have M&E's or mortality expenses applied against the contracts. They are simply the premium accumulated with interest and adjusted for withdrawals."

 

Now, I am certain you will come back and suggest that he is biased, or ignorant, or unqualified, or some other reason that the answer I received was not correct. If that's the case, I suggest that we just drop this since there is no answer that will satisfy you except the one you already have. Also, please stop criticizing my intelligence since I did exactly what you asked me to do.

 

 

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Guest TR1982
TR -

 

Your ignorance about index investing is quite telling. There are index funds for virtually all asset classes worth investing in. The best index funds available are produced by Dimensional Fund Advisors. Vanguard also has index funds and ETF's are now becoming popular. DFA has index funds for every asset class and the performance is excellent. The research into indexing goes much further than just Bogle, the research is extensive and quite telling - active management just doesn't stack up.

 

ScottyD

 

 

You know, I gave this guy some research to back up what I said and he disappeared. I guess I shouldn't do that anymore.

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