Archived Articles

Retirement Investing: Withdrawal Rates [Dec99] One of the "regulars" on Morningstar's Vanguard Diehards forum has created a concise answer to the question "how much will I need, and what kind of income can I safely expect from my investment portfolio" in retirement?

Bogle Looks Back on 25 Years of Indexing [Vanguard, 10Dec99] In this retrospective on indexing John Bogle explains how mutual fund performance statistics are sometimes distorted to make active management appear better. He also comments on why the Wilshire 5000 index is the most appropriate benchmark for the US stock market, and why Exchange Traded Funds (what we call Index Participation Units) are not always the best investment vehicle for buy-and-holders.

The fact is that indexers always win. That is, in any financial market-and any segment of any financial market-indexers owning all of the securities in that market at low cost must provide better returns than the other investors in the market in the aggregate, simply because the costs incurred by active investors-commissions, fees, taxes-are substantially higher.

Taking Charge of Your Investments The State Universities Retirement System of Illinois provides a concise guide to investing that covers topics like investment types, risk assessment and asset allocation. The Historical Returns chart shows how stocks, although risky when held for short periods, provide the the highest returns over the long run.

Streetproofing for Investors: Strategies for Moving Beyond Hope, Greed and Fear is a speech that Glorianne Stromberg made to the Small Investor Protection Association (SIPA) in June, 1999 and The New Financial Landscape Opportunities for Financial Intermediaries is a speech that Ms. Stromberg made to the 1999 National Conference of the Canadian Association of Insurance and Financial Advisors in October 1999.

The Needle or the Haystack? [Vanguard, 06Dec99] John Bogle quotes Cervantes to argue that investors should buy into the haystack instead of searching for needles:

It was Cervantes who warned us, "Look not for a needle in a haystack." While that phrase has become deeply imbedded in our language, however, it has yet to gain acceptance from most mutual fund investors. Most of us spend countless time and effort poring over fund records, getting information from news articles and television interviews and friends, from hyperbolic fund advertisements and well-intentioned fund rating services. In substance, all of these statistics describe the past returns of mutual funds with decimal-point precision, yet have no predictive power to forecast the future returns a fund may earn. As it turns out, we are looking for a very small needle in a very large haystack.

November 1999

Quaking in Their Boots? and A Dominant Proposition are two recent articles from Dow Jones' Asset Management [username=guest, password=guest] that feature Barclays Global Investors' and their imminent entry into retail mutual funds (of which their recent introduction of S&P/TSE 60 iUnits is but the first move.) These articles discuss a number of topics about the history, construction and operation of exchange-traded funds (ETFs or IPUs) including comparisons with conventional index funds. The gloves are about to come off. Vanguard, CIBC et al ought to be worried. We (DIYers) are in for a treat.

Mr. Buffett on the Stock Market [Fortune, 22Nov99] Warren Buffet on US stock market valuations, the effect of "frictional costs" on investors' returns, and our never-ending quest to try to "beat the system."

Bylo's review [17Nov99] of The Power of Index Funds: Canada's Best-Kept Investment Secret by CIBC's Ted Cadsby. Finally, a book about indexing that's oriented to Canadian investors. If you're not familiar with indexing or aren't convinced of its superiority then this book is certain to make you rethink how you invest.

Vanguard Backs Tax Act [12Nov99] "that would improve mutual fund disclosure regarding the impact of taxes on investments." Most investors don't realise "taxes are the largest cost of mutual fund investment" contends Vanguard Principal Joel Dickson who adds "the average domestic [US] equity mutual fund has lost nearly 2.5 percentage points per year to taxes on distributions of dividends and capital gains made to the fund's shareholders over the past ten years." And for Canadians that's an extremely conservative estimate considering that our capital gains tax rate is double what Americans pay.

October 1999

Investors losing a Bay Street bargain [Globe&Mail, 07Oct99] While the MER of i60s (XIUs) will increase to triple that of the TIPs they replace, it's still a great bargain. Also the TSE confirms "the conversion to i60s from TIPs 35s and 100s will be done in a way that won't trigger capital gains."

Where Have All the Geniuses Gone? [Fortune, 11Oct99] The brilliant mutual fund managers of yore are nearly extinct. The less brilliant are in danger of losing their jobs. Because in today's hot market, index funds are golden.

John Rekenthaler, research director at fund tracker Morningstar, says the actively managed funds are beginning to show up on his cultural radar as a "marketing scam for suckers."

Chris Wiles of the Rockhaven Funds feels besieged. "This used to be a very respected profession," he laments. "How did people come to think we're all idiots?"

"As much as we would like to believe that a manager with good brains, energy, and talent can always beat the system," says [financial planner Harold] Evensky, "we're no longer persuaded--at least in the large-cap domestic market--that after you factor in trading costs and fees, anyone can do it consistently."

"Sometimes I'm not sure that [active management] isn't a big hoax," admits a veteran fund consultant whose confidence has been badly shaken. "Maybe, just to support ourselves, we've kind of perpetuated [a myth], and now people are starting to figure it out."

September 1999

Barclays Global Investors launches S&P/TSE 60 index participation units. [28Sep99] Here are the Barclays press release, TSE press release on the proposed merger of TIPs and HIPs into i60s and the official iUnit website. Even some rock stars get less promotion than this!

Barclays Bonanza [Smart Money, 17Sep99] Here's a summary of the 51 new Index Participation Units or IPUs (ETFs) coming real soon from Barclays Global Investors. Still no word on MERs. And still no emerging markets and international small cap index funds.

Index-based funds are safest bet in the markets [National Post, 17Sep99] John Amonson, a fee-only financial planner in Calgary, provides a concise summary of why indexing outperforms actively-managed funds. "Picking the next winning manager is akin to gambling"

MERs not only mutual fund cost to consider [Globe & Mail, 14Sep99] While he doesn't provide a calculator, Rob Carrick joins the chorus in pointing out that MERs are but one component of the total cost of ownership of mutual funds. Bogle's word is slowly getting out.

Mutual Funds: Total Cost of Ownership [Andrew Tobias, Sep99] Most investors think the only costs they incur with mutual funds are MERs (and sometimes loads.) As we've shown in Can you afford to invest in mutual funds? MERs are only the tip of the iceberg. Now here's a website that estimates the effects of fund turnover and income taxes on total returns over time. While the calculator only recognises US mutual funds, if you plug-in something like VTSMX (Vanguard's Total Stock Market fund) along with your marginal tax rate, you can get quite an appreciation for the effects that these "hidden" costs have on your portfolio.

Formula for Success [Kiplinger, Sep99] Since index funds are passive investments all their "managers" have to do is count the money as it comes in. Wrong! Here's an interview with Vanguard's chief index fund manager, Gus Sauter, in which he explains how he earns his keep (and our free lunches.)

August 1999

Investing for Keeps: Trading can be hazardous to your wealth [Morningstar, 30Aug99] Individual investors aren't rational. Overconfidence, regret avoidance and chasing the action are among the human frailties that contribute to underperformance. Well go figure.

Jack Bogle Responds to M*'s Users [Morningstar, 24Aug99] Participants in Morningstar's Vanguard Diehards discussion forum were offered the opportunity to pose questions directly to Vanguard's Founder and (for the time being) Chairman. Well 600+ posts later Saint Jack responds to a representative sample of those questions in his traditional down-to-earth, no-holds-barred style. Reading Bogle's responses begs one question: So why would Vanguard's board of directors want him to retire? They're nuts!

Can Vanguard stay the course? [Institutional Investor, 09Aug99] A profile on Vanguard's Chairman John Brennan. Will he "stay the course" or become "Bogle's bogle"? (bogle: goblin, specter, an object of fear or loathing)

How much can you spend? [Scott Burns, 08Aug99] More evidence that the maximum safe withdrawal rate for retirees is under 5% of assets. See also: Jarrett's Tables and The Jarrett Study.

Onward Vanguard Soldiers [Mutual Funds, Aug99] The low-cost leaders are on to new frontiers. Will the Bogle culture survive?

The Generic Prospectus [FundAlarm, Aug99] Why obfuscate when it's so easy to tell it like it really is?

The Generic Mutual Fund Prospectus
Purchasers should be aware that this mutual fund has failed to provide returns that outperformed, or even equaled the performance of an appropriate benchmark index in the past; nor is it likely it will do so in the future. Return performance has been hindered by the following factors: 1) Costs that are higher than they should be; 2) Expenses that are used, not to benefit shareholders, but to promote and advertise the fund in order to increase the asset base (and thus fees paid to management); 3) Exorbitant fund family profits, so that the corporation may gratify its public stockholders and pay the fund manager extravagant, though undeserved bonuses; 4) Excessive turnover that leads to higher trading costs, taxable long and short term capital gains, and consequently lower after tax returns; 5) Board directors who fail to exercise their fiduciary responsibility to represent and protect shareholders. The average investor would be far wiser to invest in a diversified portfolio of index funds as opposed to the clinker referred to by this prospectus.

July 1999

MoneyLive Chat with John Bogle [28Jul99] In an Internet chat session, Vanguard's John Bogle covers a broad variety of topics including why indexing works independently of market efficiency, why Vanguard won't start more sector funds, the pitfalls of day-trading, and of course, why costs matter.

Efficient Frontier - July 1999 The latest edition of Bill Bernstein's e-journal for asset allocators is now available. Featured is an item about the perils of infatuation with fund managers. Also there's more on fund costs and currency hedging.

A Neurologist with the Nerve to Call His Own Investing Shots [Business Week, 09Jul99] An interview with consummate DIY investor and Efficient Frontiersman, Dr. Bill Bernstein. How much time does it take to DIY? "The guy who spends 15 minutes a year rebalancing his four index funds is probably going to do almost well as the guy who spends two or three hours a day doing it." [Poetic version.]

UITs and Index Funds - A comparison [IndexFundsOnline, 07Jul99] What's lower, the MERs claimed by IPUs like TIPs, SPYs, QQQs, etc. or the ethics of their promoters who obfuscate on actual costs? Here's what one DIYer discovered when he looked beneath the surface.

June 1999

S&P/TSE 60 units are good news [National Post, 28Jun99] Eric Kirzner provides more information about the forthcoming IPU. Here's a link to the regulatory filings, including the simplified prospectus, from SEDAR.

Morningstar Fund Spy [Morningstar, 17Jun99] Two mantras of Vanguard's John Bogle are costs matter and turnover matters. We've looked at the former in Can you afford to invest in mutual funds?. Here's a look at the latter Turnover matters.

Mined, All Mined: Watching Out for Funny Numbers [Morningstar, 08Jun99] Mindful of the "pitfalls" of data mining, Efficient Frontier's Bill Bernstein debunks The Motley Fools, Jim O'Shaughnessy (What Works on Wall Street), and yes, even Jeremy Siegel (Stocks for the Long Run). And the debate continues.

Broad approach for the long-term [CBS Marketwatch, 01Jun99] A 'random talk' about Wall Street, indexing, and Internet stocks with Burton Malkiel on the occasion of the publication of the 7th edition of his classic book A Random Walk Down Wall Street.

We need an 'open sky' policy for Canadian investors: There's no need to block access to cut-rate U.S. brokers and funds [National Post, 01Jun99] George Bragues argues that Canadians who want to invest with US brokers don't need "help" from Canadian securities regulators in a country that already has "the most rigorous securities laws in the world."

May 1999

Education is what you get when you read the fine print. Experience is what you get when you don't. ...Arthur Levitt, Chairman of the SEC (usually attributed to Pete Seeger.)

Give a man a fish and you feed him for a day; teach him to use the Net and he won't bother you for weeks. ...Andrew Grove, retired CEO of Intel Corp.

Investment Pornography [Investor Home, 20May99] Do you know what is Investment Pornography and why it could be dangerous to your financial health?

Two Pros Clash on Merit of Foreign Stocks [Wall Street Journal, 18May99] John Bogle and Burton Malkiel square it off on the need to diversify outside the US.

Can you afford to invest in mutual funds? [May99] Many people simply don't realise how much of the returns from their investment portfolios are eroded by mutual fund fees and taxes. They wrongly assume that the only expenses they incur are the funds' published annual MERs. This article attempts to describe and estimate all of the expenses that mutual fund owners incur. It then shows how severely these costs impact on the ultimate performance of their portfolio.

Marketing devalues funds, author says [Toronto Star, 12May99] Ellen Roseman reviews John Bogles's new book, Common Sense on Mutual Funds, profiles his longstanding advocacy for the investor, and mention's Bylo's "Van Mail" campaign.

Study supports stocks/fixed-income mix [Scott Burns, 11May99] Here's more evidence that Keeping It Simple is the Smart way to invest:

Over a long period of time, an index portfolio that is somewhere between 50-50 and 75-25 equities and fixed income will do as well as a portfolio that is 100 percent invested in the average managed equity funds. And it will do it with less risk.

Our long-term goal is to become a new force in world markets, a force that seeks out fiduciaries who are responsible for corporate retirement plans, and individuals who have come to realize, straightforwardly put, that, yes, cost matters. Put another way, we believe that the market for financial services will be increasingly commanded by buyers, not sellers, and that simply by giving investors a fair shake we will build a substantial asset base of loyal, durable, long-term investors.

April 1999

A fundamental Warren Buffett [Philadelphia Inquirer, 28Apr99] More of Buffett's wit and wisdom. On the subject of size "With only $1 million, I think I could average 50 percent growth a year - actually I know I could," he said. "But anybody who tells you he can do as well with $10 billion as he can with $1 million is somebody who's getting paid based on assets."

Mining Fool's Gold Here's a marvellously witty debunking of the "Foolish Four" portfolio. More important is its excellent explanation of the pitfalls of data mining. Did you know that mining UN economics data "proves" that butter production in Bangladesh predicts 75% of the variation in the S&P 500 index? Read this before you get shafted by a data mine.

Common Sense on Mutual Funds: New Imperatives for the Intelligent Investor [Apr99] John Bogle's new book is now available in Canada! He covers more than just the technical aspects of investing, with sections devoted to the fund industry as well as to Bogle's business philosophy. Here's what Bogle has to say about his new book. Whether you're an indexer or you believe you can "beat the system," this book is for you.
The link is to Amazon.com because they have the best description. Buy the book in Canada over the Internet from Indigo or Chapters.

Less Than Meets The Eye: Equity-Linked CDs [Morningstar, 15Apr99] In the latest installment in his "Investing for Keeps" series, Frank Armstrong examines index-linked GICs. Hint: They're not such a great deal south of the border either.

The downside of withdrawal plans [National Post, 14Apr99] Jon Chevreau's second article on Systematic Withdrawal Plans includes a quote from Bylo and a reference to this site's, How Much Can You Safely Withdraw From Your Savings During Retirement?.

Two readers suggested the 8% withdrawal rate mentioned in the last column may be a tad optimistic. Bylo Selhi, the pseudonym of a regular contributor to the Fund Library's Internet-based discussion forum, says the 8% to 10% rates suggested by some fund companies "are simply not sustainable under adverse conditions like 1970s style inflation, or the bear markets of 1973 or 1929. Most credible studies (e.g. Moshe Milevsky, Trinity, Harvard, et al) have found that 4% is about the most one can withdraw to ensure that your nestegg doesn't run out before you (and your spouse) do. Especially now that people live longer (20, 30 or more years into retirement) the 8% that many "experts" promote could prove problematic."

Hopes S&P/TSE 60 will lift Canadian returns [National Post, 19Apr99] What will happen to TIPS 35 and TIPS 100 when the Toronto 60 index introduces an index participation unit (IPU) along the lines of TIPS? Eric Kirzner suggests three possibilities.

Buying US Mutual Funds and Stocks from Canada [11Apr99] has been completely revised. If you want to buy Vanguard mutual funds or buy US stocks for a fraction of the brokerage fees you'd pay in Canada, this is a "must read."

Welcome move to bond transparency [National Post, 09Apr99] It looks like finally (or rather "soon") Canadian investors will be able to get real-time bond pricing and yield information. Until now independent investors had to buy fixed-income securities blindly, relying on whatever was in their broker's inventory and pay whatever markups the broker could get away with. See also: Playing field levels with CanPX launch [Globe & Mail, 13Apr99] and the CanPX website.

In the Future, You'll need Less Money [Scott Burns, 04Apr99] Conventional wisdom is that income needs stay constant during retirement years. A recent research paper from the US suggests that instead retirees reduce their spending voluntarily as they get older. Consequently traditional financial planning models may overestimate how much we need to save in order to retire comfortably.

"This doesn't get people off the hook for saving", Professor Tacchino said in a recent telephone interview. "But I want people to feel there is hope. It's a do-able thing. This (approach) may make the task (of retirement saving) less intimidating and make people less likely to just give up."

March 1999

Changing the Mutual Fund Industry: The Hedgehog and the Fox [20Feb99] Vanguard's John Bogle, on receiving the Woodrow Wilson Award from his alma mater, Princeton.

My mission has been to change the industry so that our citizens — the human beings who invest in funds — get a fair shake. ... I still have promises to keep for fund investors and miles to go before I sleep.

Hear John Bogle's speech

The Wealthy Boomer [Mar99] Bylo reviews Jonathan Chevreau's new book The Wealthy Boomer. Even if you're neither wealthy nor a baby boomer you can profit greatly from this book.

Taxes: The Natural Enemy of the Investor [Morningstar, 19Mar99] The latest installment in Frank Armstrong's Investing for Keeps series. We Canadians can only look at US tax regulations with envy. :-(

The Skeptic's Guide to Mutual Funds [Fortune, 15Mar99] "Despite volumes of research attesting to the meaninglessness of past returns, most investors ... seek tomorrow's winners among yesterday's. Forget it. The conditions that made a fund great in the past tend to change. ... The truth is, much as you may wish you could know which funds will be hot, you can't--and neither can the legions of advisers and publications that claim they can. That's why building a portfolio around index funds isn't really settling for average (or a little better). It's just refusing to believe in magic."

Vanguard's Mr. Thrift vindicated [St Petersburg Times, 14Mar99] Vanguard investors are the beneficiaries of John Bogle's legendary reputation for penny-pinching and for his unwavering shareholder advocacy.

"I'd love to find someone who wants to debate, but I haven't found anybody yet," he said. "I need to do what the politicians do, go around and have an empty chair next to me. Where is the other side of all these arguments that I put out? How about one that says 'spending the shareholders' money on marketing improves returns?' It's just not justifiable, but that's what's going on in the industry."

Efficient Frontier - April 1999 [13Mar99] The latest edition of Bill Bernstein's e-journal for asset allocators is now available. It introduces a revolutionary new concept called "The Investment Entertainment Pricing Theory (INEPT)." Even US Fed Chairman Alan Greenspan is a believer.

Pay less, earn more [Globe & Mail, 09Mar99] Rob Carrick weighs the MERits of fund families.

Billionaire Warren Buffett [ABC Nightline, 02Mar99] Ted Koppel interviews billionaire businessman Warren Buffett over lunch at an Omaha Dairy Queen.

February 1999

Dump your fund manager, AND GET RICH! [Canadian Business, 26Feb99] "Over the past five years, 82% of all the money invested in Canadian mutual funds--some $239 billion--has languished in funds that were unable to better their benchmark indices."

Something to think about [20Feb99] But don't think about this too hard. It may give you a hangover. What some others are thinking about this.

Singh's unFortunate Destiny seems to be an Infinity of problems with the OSC [Toronto Star, 10Feb99] Caveat investor!

The Gospel according to Vanguard [Forbes, 08Feb99] Even that redoubtable "capital tool" raves about Vanguard. Find out how the world's second largest mutual fund company, with assets about double the entire Canadian mutual fund industry, can grow at an annual rate of 33% -- despite a puny $8 million advertising budget.

The Clash of the Cultures in Investing: Complexity vs. Simplicity [03Feb99] Keynote speech by John C. Bogle, Senior Chairman and Founder, The Vanguard Group to The Money Show, Florida. "Selecting funds that will significantly exceed market returns, a search in which hope springs eternal and in which past performance has proven of virtually no predictive value, is a loser's game."

The Case for Index Funds [Mutual Funds, Feb99] Here's an excerpt from the forthcoming book Earn More, Sleep Better--Investing with Index Funds by Burton Malkiel, Professor of Economics at Princeton University and author of the 1973 classic A Random Walk Down Wall Street.

January 1999

Most of the activity that makes active portfolio management active is wasted; it adds no value since it is engendered by the mistaken belief that the manager possesses information the market is unaware of, or that the market has mispriced. It does impose costs: trading costs, market impact costs, and taxes.

Efficient Frontier - January 1999 [15Jan99] The latest edition of Bill Bernstein's e-journal for asset allocators is now available.

Retirement Planning: Making it Last Forever [Morningstar, 08Jan99] In the latest installment of his series Investing For Keeps, Frank Armstrong looks at what is a sustainable rate of withdrawal from retirement savings based on historic market returns. Frank's article summarises the so-called Trinity Study paper, which along with several related items, is available here.

Low-key style pays big dividends: Phillips, Hager & North uses innovative fee structure, not hard sell, to attract investors [National Post, 08Jan99] Some background on the best Canadian mutual fund company that you probably never heard of. Now if only we could get PH&N to team up with Vanguard to offer low-MER index funds to Canadians...

The Stromberg Report - II [Strategis, 07Jan99] Here's what the feds have on Glorianne. The full report is available in PDF format. There's also a brief summary in HTML. And here's what Bylo's got on Glorianne: The Stromberg Files.

December 1998

S&P/TSE 60 [18Dec98] Here is some information about the new S&P/TSE 60 index along with some questions and answers about how the TSE will transition from TIPs and HIPs to SIPs.

RevCan Can Rev(erse) [18Dec98] Paul Martin is finally changing income tax regulations to "legalise" investments in foreign index participation units such as SPYs, DIAs and WEBs. Despite common industry practice, Revenue Canada previously held that these securities were totally ineligible for registered accounts. Now they're OK up to the usual 20% of book value. See also Revenue's good deed.

Bogle on Myths About Indexing [14Dec98] Index investing has proved to be a successful investing strategy in the last decade, but myths and misconceptions about it still "cloud the vision of investment managers and investors," according to Vanguard Senior Chairman and Founder John C. Bogle.

Mutual fund guides miss third-quarter rout [05Dec98] Since most of the 1999 editions of mutual fund guides went to press before the summer mini-bear their performance figures and fund ratings may not be quite up to date. Caveat lector.

Ethical Mutual Funds [01Dec98] Have a look at this transcript of CBC's consumer affairs program Marketplace before you invest in a so-called "ethical" or "socially responsible" mutual fund. Some mutual fund companies interpret the meaning of the word "ethical" very loosely. This flexibility isn't restricted to Canadian mutual funds. Several of the articles referenced at the CBC site suggest this is also an issue in the US and UK.

November 1998

Glorianne Stromberg's remarks [15Oct98] to the Strategy Institute National Conference on Mutual Fund Regulatory Reform, Toronto, Ontario.

October 1998

Some Things Are More Important Than Investing In Stocks [29Oct98]
...or mutual funds for that matter.

Earnings hold clues into future [18Oct98]
Scott Burns interviews Dr. Ed Yardeni. Have we seen the bottom of the 1998 bear or are US large cap stocks still overpriced?

Morningstar: Trading Funds via the Web [16Oct98]
Explains how US brokers charge for mutual fund trades. Includes links to a variety of brokers, most of whom will do business with Canadians. See also Buying US Mutual Funds from Canada for more links to US broker ratings.

Bogle on Simplicity in Investing [14Oct98]
"To earn the highest returns that are realistically possible, you should invest with simplicity. Rely on the ordinary virtues that intelligent human beings have relied on for centuries: common sense, thrift, realistic expectations, patience, and perseverance."

Investing in far from normal times [09Oct98]
Why Y2K won't go away. Remember that because "program testing can be used to show the presence of bugs, but never to show their absence" [Edsger Dijkstra], we won't know if the world as we know it will really come to an end until January 1, 2000.

Advice for mutual fund investors in risky times [08Oct98]
Here's advice on how to keep the gains you've made during the '90s bull run -- unless, of course, you think markets have bottomed out (in which case read the item above.)

September 1998 and earlier

Index Mutual Funds: The Best Investment Strategy for Complying With the California Uniform Prudent Investor Act [31Aug98]
Could trustees be in violation of their fiduciary responsibilities if they invest trust assets in actively-managed funds instead of in broad-based low-cost index funds?

Profitable Courses [27Aug98]
From Money 101 to advanced studies, there's a learning program that can help everyone manage their own fortunes

Have Index - Will Travel [24Aug98]
Do international index funds beat their actively-managed brethern?
 
Harold Evensky on Asset Allocation: The Art of Being "Not Poor"
Genius is a Rising Market
A 'no-brainer' method to mirror the market: Index Funds
Indexing Works Everywhere: A Conversation with Vanguard's John C. Bogle
Brennan on Asset Allocation in Today's Markets
The Bill and Warren Show