Who Should NOT Invest in Total Market Index Funds? Summary
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- เผยแพร่เมื่อ 15 มิ.ย. 2024
- I posted a video on my TH-cam channel covering some of the arguments against market cap weighted index investing - basically that all investors are different and while the market portfolio is theoretically optimal for the average investor, investors who are different from average may consider accommodating those differences through their asset allocation decisions.
If an investor is exposed to certain risks outside of their portfolio, like in their job or business, they may want to avoid those risks in their portfolio, while an investor who is not exposed to any risks outside of their portfolio may want to tilt their portfolio toward the risks that most investors want to avoid.
As a supplement to that video, we have put together a handful of clips that reinforce the message. I hope that they are useful.
Check out Ben's video here: • Who Should NOT Invest ...
Episode 169 with John Cochrane: • RR # 169 - John Cochra...
Episode 200 with Eugene Fama: • RR #200 - Prof. Eugene...
Episode 234 with Robert Merton: • Prof. Robert C. Merton...
Episode 220 with Jonathan Berk: • RR#220 - Jonathan Berk...
Timestamps:
0:00 Intro
2:34 John Cochrane on investor heterogeneity (ep 169)
11:48 John Cochrane on value stocks (ep 169)
15:24 Eugene Fama on why the market portfolio is a good starting point, and when investors may deviate from it (ep 200)
19:44 Robert Merton on the ICAPM and deciding which risks matter (ep 234)
30:10 Jonathan Berk on why buying the market hedges against mistakes (ep 220) - แนวปฏิบัติและการใช้ชีวิต
I'm average and I know it.
Exactly, I look in the mirror and there is not a skilled trader looking back…
Knowing that makes you above average
Clap your hands!
@@hungrypup Not really as the average investor by definition makes the average return; but potentially you are better than the median one if we observe that few makes most of the gains and hence a majority loses out vs market average.
I would like to point out that it is unlikely that you are an average investor. Large outliers skew the average investor's wealth and risk tolerance high. It is far more likely that you share characteristics with the median investor. Just something worth keeping in mind. According to NerdWallet in December 2022: "The average net worth for U.S. families is $748,800. The median - a more representative measure - is $121,700." Portfolio size for investors likely echoes that cap between average and median. Buying an average portfolio might make sense, but should you be taking risk the same as a portfolio 5 times the size of yours? Maybe, maybe not.
The interview with Robert Merton looked like you were using a time machine to talk to someone in the 1990s
I hate how true that is
But preofessor Merton‘s theory still stand correct today.
Long Term Capital Management?
Love this kind of topic video. Good job and thanks!!!
We really love this. Thank you!
I’d like to be an index investor but if you live in Ireland, ETFs are treated differently to shares and taxed at higher rates depending on where the etf is based. So I try to follow a defensive investor strategy that hopefully won’t lag the market to much. So far (3 years) I have out performed but I know this won’t last as I’m an amature against professionals.
Can you use index funds in Ireland instead of ETFs or are they also taxed badly?
Great video! Thanks!
Excellent show today guys.
If the average investor should own the complete market how do I know in what percentages I should own things besides stocks (like bonds, gold, bitcoin). If you just look at the total market caps of bonds, gold & bitcoin compared to the stock market than you and up with a 60% bond allocation. Surely this isn't the optimal portfolio for the average investor. If this truly is the optimal allocation for the average investor, I must have a much higher risk appetite than the average investor.
regarding buying total stock market (TSM), it seems as if buying TSM might be a bet against or for certain stocks someone with more information values or devalues. why is this not the case?
I think your question is best answered by the segment with Jonathan Berk in this video. He explains that you can not be on the losing side against someone with more information as you do not have any exposure to anything beyond the average of all information, if you hold the market portfolio.
When you hold the market cap weight TSM, you're not really betting on anything in particular since you hold all stocks proportionate to their market cap. This might be considered a bet in the sense a MCW portfolio is about 75% large caps. These stocks have had lower returns historically, but are less volatile than small cap value.
So 100% VT? how do we make the "market portfolio" ? what weightings?
yeah
Born to be mild
What kind of headphones do you use for the podcast? Sony?
legend
Total market etf is VTI or VOO?
VOO includes "just" US companies
VOO is the S&P 500, a subset of the US Market
VTI is the total US market, you would need to combine it with (I believe) VEU to get a whole-world total market portfolio
VT is the Vanguard ticker for the total world stock market fund, both US and International
it's VT :)
VT is awesome!
I know two guys who invested in their own different companies (UPS & Exxon) and became millionaires.
I’m a leftist who understands that capitalism can benefit people in general. However, capitalism may also disproportionately benefit some at the expense of others.
????
I mean, yeah, the idea in a lot of European countries is that once everyone benefits from capitalism, disproportionately and at the expense of some of course, you then tax in a way that you are able to provide a better life for all. Not that any one country has figured it out completely, but there's better ones and worse ones.
... this guest has 0 idea about politics, I hope his understanding of economics and finance is better, it does seem like it is. Just goes to show that an expert in one area is not an expert in all. Edit: The first guest that is, John Cochrane, wrote the comment before I knew more people were coming on.
Cope.