ETFs, Mutual Funds And The S&P 500

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A few days ago, I wrote that the media does not like to include bear markets when reporting performance comparisons between mutual funds/ETFs and the S&P; 500.

Of course, I can’t read every financial paper in the universe, so my view is limited to those that I do read. Reader (and client) Nitin pointed out an article in the NYT that actually addressed the issue to a degree.

The heading was very appropriately named “Oops, It May Be Time To Rebalance That Portfolio.” It then goes on to explain the hardly impressive S&P; 500 returns when measured over the past 7 years.

Unfortunately, the article quoted John Bogle (founder of Vanguard) who is the icon of Buy and Hope investing. While his Vanguard 500 Index fund had big losses in 2000 and 2001 (how about 2002?), he would have broken even ahead of the S&P; 500 (in “only” 6 years as opposed to 6-1/2) because the fund reinvests dividends.

Yes, you are reading this right. Having had steep losses in the last bear market qualifies for boasting if your losses were slightly less than that of a similar index. How sick is that?

The article goes on to evaluate various portfolio allocations that would have broken even as early as the end of 2004. Sure, the benefit of hindsight…

Okay, then it’s time for the portfolio rebalancing act, where every ‘expert’ has a different opinion as to how it should be done. Articles like this make my hair stand up, because it’s the same drool I’ve been reading for about 30 years.

There never seems to be any change or improvement to dealing with the absurdities of Wall Street. How about this: Let’s try to avoid the brunt of a bear market altogether?

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Comments 1

  1. It’s interesting that Jack would have used the S&P; index fund for this article because, in fact, approx. 60% of the stock (equities) side of Bogle’s personal portfolio is made up of Vanguard Total Stock Market Index (VTSAX – Admiral Shares). He says he prefers the entire stock market rather than just the S&P; 500.

    For the record, using the investor shares of Vanguard Total Stock Market Index (VTSMX) and using the period Jan. 1, 1999 to Jan 1, 2007 (the seven years in question I believe) and accounting for dividend and capitol gains re-investment, you would have realized a return of 38.5% for an annualized return of 5.5%.

    VBMFX (Vanguard Total Bond Market Index) returned 49% over the same time frame.

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