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Originally Posted by kiora
Nothing interesting about it and it's complete hogwash. Article didn't explain the risk of having 3 major funds owning 50% of the market; the risk is a market sell off can easily be manipulated by having few big players that determine the direction of the market (and that's what Jack Bogel was worried that too few big players can have too much manipulation of the market). But it has nothing to do with competition of the individual shares they hold, if the fundamentals hold well, so will the stocks and thus investment returns.
Something to think about if you really want to use an adviser or an investment manager or some personal investment broker:
https://www.quantumamc.com/mailer/20...ep16/Money.pdf
(Link originally from WSJ but requires silly subscription registration to view it wholly)
Basically he says the S&P500 won and the managed funds didn't over the 10 year time frame. Why? because of management fees, something many Kiwi Saver funds are guilty of. Think you can find a good broker in NZ that is that savvy enough to consistently beat the market? They're only riding on luck. The consultant's only interest is to extract fees from their clients, plain and simple.
And to think he was lucky on that bet, he's willing to offer it again:
https://www.cnbc.com/2017/10/03/afte...dex-funds.html
In Buffet's 2017 Annual meeting he also described to his shareholders on the problem between active investing (the "Hyperactives) vs Passive investing. He says by "default" the passive investor gets a whole market share of the US economy (or the S&P500). Whlie the hyperactives are just only trying to guess which stocks (that operate under the US economy model) would do better than the other. So in relation to that article about lack of competitiveness ; by default the S&P500 pool of stocks already hold a majority portion of American stocks, you don't need to question about their competitiveness.
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Passive funds might be great in Bull markets BUT not in Bear markets
https://www.ccmmarketmodel.com/passive-in-a-bear-market
In bear markets when retail investors sell out of passive fund,fund needs to liquidate underlying asset causing self perpetuating drop in value of the funds.
Not just my view
https://www.ft.com/content/cdbdd01a-...8-8640db9060a7
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Composition of investments are important
https://www.goodreturns.co.nz/articl...or+29+May+2019
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considers how much to deviate from the optimal portfolio to reduce biased decisions, building a portfolio the client can stick with. It includes three criteria:
Relative level of wealth: investors with high levels of wealth compared to their lifestyle can afford to deviate away from the optimal portfolio
Standard of living risk: is the client’s standard of living at risk if their portfolio was sub-optimally allocated. High standard of living risk reduces ability to deviate from the optimal portfolio
Biases: the primary type of biases will also impact the decision. Cognitive biases are easier to moderate, proper education can reduce the need to deviate. Emotional biases are more difficult to deal with and will typically need to be adapted to allowing a larger deviation from the optimal portfolio would help the client stay the course."
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Originally Posted by kiora
Composition of investments are important
https://www.goodreturns.co.nz/articl...or+29+May+2019
"
considers how much to deviate from the optimal portfolio to reduce biased decisions, building a portfolio the client can stick with. It includes three criteria:
Relative level of wealth: investors with high levels of wealth compared to their lifestyle can afford to deviate away from the optimal portfolio
Standard of living risk: is the client’s standard of living at risk if their portfolio was sub-optimally allocated. High standard of living risk reduces ability to deviate from the optimal portfolio
Biases: the primary type of biases will also impact the decision. Cognitive biases are easier to moderate, proper education can reduce the need to deviate. Emotional biases are more difficult to deal with and will typically need to be adapted to allowing a larger deviation from the optimal portfolio would help the client stay the course."
The same kind of hogwash that Buffet has been ranting on for years so i'll post his quotes instead of spewing my own words:
"There's been far, far, far more money made by people in Wall Street through salesmanship abilities than through investment abilities"
“A lot of very smart people set out to do better than average in securities markets. Call them active investors. Their opposites, passive investors, will by definition do about average. In aggregate their positions will more or less approximate those of an index fund. Therefore, the balance of the universe—the active investors—must do about average as well. However, these investors will incur far greater costs. So, on balance, their aggregate results after these costs will be worse than those of passive investors.”
“If 1,000 managers make a market prediction at the beginning of the year, it’s very likely that the calls of at least one will be correct for nine consecutive years. Of course, 1,000 monkeys would be just as likely to produce a seemingly all-wise prophet. But there would remain a difference: The lucky monkey would not find people standing in line to invest with him.”
“The bottom line: When trillions of dollars are managed by Wall Streeters charging high fees, it will usually be the managers who reap outsized profits, not the clients. Both large and small investors should stick with low-cost index funds.”
and as an adage for Jack Bogle (may he RIP):
“If a statue is ever erected to honor the person who has done the most for American investors, the hands-down choice should be Jack Bogle. For decades, Jack has urged investors to invest in ultra-low-cost index funds. In his crusade, he amassed only a tiny percentage of the wealth that has typically flowed to managers who have promised their investors large rewards while delivering them nothing—or, as in our bet, less than nothing—of added value.”
https://www.ifa.com/articles/buffett..._crash_stands/
Do these metrics still apply in NZ? You bet they do! The only problem is in NZ, you have a limited choice of shares to choose and with returns that are very mediocre. It is so bad that the risk tolerances are not even comparable to the investors in N. America. Ie. for the level of risk the NZ risk adverse investor would be exposed to by choosing NZ50 stocks vs S&P500 is on a different plane.
Last edited by SBQ; 30-05-2019 at 09:51 AM.
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Originally Posted by kiora
Liquidity is important.For myself personally its not important regarding my own kiwisaver as its only fraction of retirement savings.But for others?
A potential Annus horribilis?
https://www.stuff.co.nz/business/113...ay+5+July+2019
"Milford Diversified Income Fund carries 30 per cent of investments that can't be sold within five days. The Trans-Tasman Bond Fund has 25 per cent and the Balanced Fund 19 per cent. "
Last edited by kiora; 05-07-2019 at 08:22 AM.
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Thanks for mentioning this and the Stuff article. The main points are that sure a fund may be doing well but when the music stops and it will, you will take a huge haircut in your invested capital.
The funds that are performing above benchmarks need to as the risk is higher than a fully liquid fund with similar performance.
If you have second thoughts and try and withdraw when there is a run on the fund this is when losses will be crystallised.
I think what people need to consider is diversifying their invested capital between a few structures and also asking themselves how they would react if there is a run on the fund. Ideally you would remain but there is huge uncertainty in the value of the remaining units.
I suggest diversifying between different structures, looking at 10y performances, % held in what companies and being ruthless if the fund is looking average. This is because the risk profile is higher than a more conservative fund.
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Originally Posted by 777
this doesn't really apply to KiwiSaver funds though. They will almost certainly never experience a massive run because people cant withdraw until 65. Or, even if say one particular fund has a huge number of transfer requests outwards it would never be like a full scale run because most people don't take that active an interest in their KS.
Which is kind of a good thing about KiwiSaver for the average person who may well be inclined to liquidate their losses during a financial crisis scenario (if they are able to).
For clarity, nothing I say is advice....
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Originally Posted by peat
this doesn't really apply to KiwiSaver funds though. They will almost certainly never experience a massive run because people cant withdraw until 65. Or, even if say one particular fund has a huge number of transfer requests outwards it would never be like a full scale run because most people don't take that active an interest in their KS.
Which is kind of a good thing about KiwiSaver for the average person who may well be inclined to liquidate their losses during a financial crisis scenario (if they are able to).
My understanding is funds like Milford Growth Fund that are 'mirror' images of Kiwisaver growth fund with a higher proportion of unlisted investments then it could affect their returns?
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Originally Posted by kiora
My understanding is funds like Milford Growth Fund that are 'mirror' images of Kiwisaver growth fund with a higher proportion of unlisted investments then it could affect their returns?
well my point is that liquidity requirements are less likely to affect a KS fund.
Any non KS mutual fund will potentially have returns affected by liquidity in the usual way which is : being able to accept lower liquidity can potentially increase returns (as long as you're not forced to liquidate at a bad time). I understand this is called a liquidity premium. And the converse is true that if you require high liquidity your investments will likely have lower returns.
For clarity, nothing I say is advice....
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