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I am usually an individual stock guy. Sometimes I will buy a closed-end fund selling at its historically high discount. Been 95% stocks, 5% cash for decades. Social Security will be my fixed income. Today it would be like owning $2.3M in a 10-yr govt. bond. See no good reason to own any more fixed income. Obviously, stock market volatility doesn’t bother me.
As long as the costs (expense ratios) are low, that’s all that really matters. It appears that ex-US and EM funds can do fine or better than index funds, but you just have to be careful you don’t performance chase. It’s funny to look at the investment lineups in 401k plans – they often feature some index funds and a slew of the last 10 years’ hottest active funds. And guess what many participants go for… thankfully, target-date funds are becoming mainstays in plan lineups nowawadays.
I know the stats, but I only buy individual stocks or actively managed funds. I think the key is to have confidence in what you own so you don’t panic in the panics.
I would never recommend an actively managed fund. It is just too hard to beat the averages after expenses are considered. If you know you can generate an average return, why would you risk under-performing the market average?
I do think it makes sense on the bond side, and especially in the international bond space. If a bond index is market cap weighted, what you’re doing when you buy the index is to buy more of the most heavily indebted entities. That’s never struck me as a good idea.
I’ve never read any articles comparing the returns of index funds versus active funds. I suspect bond funds are not that different from stock funds.
Expenses matter and it is hard to beat averages over time.
Interesting point. What would you say is a decent management fee to pay for an active bond fund?
Excellent point. Arguably, you should own market-capitalization-weighted index funds when buying stocks, because a high stock market capitalization reflects investors’ collective vote of confidence. But large amounts of debt outstanding is another matter. While I don’t own fundamentally weighted bond index funds (those that might weight a nation’s bonds by measures like, say, GDP rather than the value of debt outstanding), I could see doing so if the funds were available at very low expense ratios.