Monday, June 02, 2014

which index fund?

Buffett is directing that 90% of the cash he's leaving to his wife should be put in an S&P 500 index fund.

Buffett suggests Vanguard's, but there are other index funds.

Here's what I wrote last year, when contemplating switching out of my holdings of FDGFX.

Morningstar rates it two stars.  They had 537 stock holdings with turnover of 63%.  That's more holdings than the S&P 500.  You might as well just hold an index fund, like the Spartan 500 Index Fund (FUSEX).

FDGFX's top holdings are AAPL, WFC, GOOG, C, PG, JNJ, PM, BRK.B.  Which sounds fine to me.

FUSEX holds, naturally enough, 500 stock holdings with turnover of 4%.  The top holdings are AAPL, XOM, MSFT, JNJ, CVX, GE, GOOG, IBM, PG, PFE, T, BRK.B, JPM, WFC, KO.  Didn't realize that BRK.B is up there in the index.

Looking at the ten year returns of the Fidelity U.S. stock funds, FDGFX returned 6.66%, FDSSX 7.46%, FUSEX 7.81%, FCNTX 10.58%, FLPSX 12.31%.  So I'd say it's the odd fund out.

Looking at the current ten-year returns, FUSEX actually outperformed VFINX over 10 years: 7.50% to 7.46%.

Schwab has an index fund too, SWPPX with a minimum investment of only $100.  It returned 7.52% for ten years.  This is the benchmark I should be using for comparing funds.

[6/5/13] Or how about an equal weight ETF like the Rydex S&P 500 Equal Weight ETF (RSP) which is commission free at Schwab.  It has returned 9.50% for ten years compared to 7.33% for the S&P 500.  SWPPX has returned 7.28%.

This would be good to switch to, when you think the largest cap stocks (currently AAPL and XOM are the largest) have run up too high.  RSP rebalances quarterly.  Which means they'll sell the largest weighted stocks at the end of the quarter.  And buy the smallest.  Their highest holding is currently First Solar FSLR, which has gone from about 27 to over 50 since the end of March.

[12/2/15] looking at equal weight since Roberts at chucks_angels has been writing about it] Then again, if you look back to 1990...

[12/2/15] Another alternative to cap-weighted index funds is the WisdomTree funds.

No comments: