Author Topic: I don't like the Vanguard index funds  (Read 23868 times)

nocoast

  • 5 O'Clock Shadow
  • *
  • Posts: 10
Re: I don't like the Vanguard index funds
« Reply #50 on: June 03, 2015, 10:50:46 PM »
tl;dr - I have $5000, no debt, no expenses, no assets, and I want to start an IRA and begin investing. Should I do Roth or traditional, and is this company's mutual funds (http://greencentury.com/our-funds/) a suitable sustainable replacement for the Vanguard index funds?

Can you contribute to a retirement account when your source of income is a fellowship?
I am not sure that it is considered the same; my recollection is that this is somewhat complex.

It depends on whether it's considered "earned income."  None of my fellowships ever were, but I know people who did receive fellowships that were considered earned income.

Nocoast: make sure your fellowship is considered earned income before depositing the money in a retirement account.  If it turns out that you're not eligible, there are substantial penalties for depositing the money in the account.  The easiest way to tell is to see if Social Security taxes are deducted - if they are, then it's considered earned income.  Unfortunately, if they're not, it doesn't necessarily mean that you aren't able to contribute - it just makes it more complicated.

I thought I would have taxes deducted, as I had to fill out a W-2 and this is technically a stipend for a research internship - I don't go to school at the institution, so it is not a scholarship per se. But when the first half was deposited into my account, it was $2,500 even, no taxes deducted. What's the next step now?

I take the topic to be "how to make a diversified investment in stocks at low-cost without investing in fossil fuel companies," not whether fossil fuel divestment is desirable.

One solution would be to collect a number of sector-specific or other funds that exclude (or minimize) energy companies.  Here's a list of Fidelity sector ETFs (except energy), which could be purchased to mimic the VTI without energy at a 0.12% expense ratio.  (If anyone calculates the correct allocation to achieve that, please post it.)
FREL Real Estate
FNCL Financial
FSTA Consumer Defensive
FTEC Technology
FDIS Consumer Cyclical
FCOM Communications
FHLC Health
FIDU Industrials
??? FMAT Natural Resources
??? FUTY Utilities

Other ideas include: 
VIS - Vanguard Industrials ETF - 0.12% Expenses (https://personal.vanguard.com/us/funds/snapshot?FundId=0953&FundIntExt=INT)

ONEQ - FIDELITY NASDAQ COMPOSITE INDEX - 0.21% Expenses (https://advisor.fidelity.com/app/funds-and-products/etf/FIIS_ETF_ONEQ/fidelity-nasdaq-composite-index-etf-oneq.html)

VFH - Vanguard Financials ETF - 0.12% Expenses (https://personal.vanguard.com/us/funds/snapshot?FundId=0957&FundIntExt=INT)
 
These are just examples.  You should be able to find other low-cost funds that do not include energy stocks (or are at least significantly underweight in energy).  You would want to check the prospectus documents to ensure you were comfortable with at least their top holdings.  You might also want to supplement with some purchases of funds investing in renewable.)

Once you found a group of funds you were comfortable with, use Personal Capital or Morningstar x-ray to create an allocation that is at least reasonably diversified.  (You don't want to accidentally end up with 80% tech stocks.)

It actually seems like a fun Mustachian challenge: DIY a fossil-fuel free at much lower cost than a 1%-plus fee solution.  Someone with more time and energy on their hands than I do should give it a shot.

With only $5,000 to invest, it may be difficult to put together a truly balance portfolio.  On the other hand, I don't think it's essential to be fully diversified with such a small portion of your lifetime earnings on the line.



You could also look at Vanguard's sector funds. The ER is 0.12%. You'd want the ETFs since the Admirals have a $100k minimum.
Sector   Admiral   ETF
Technology   VITAX   VGT
Financials   VFAIX   VFH
Health Care   VHCIX   VHT
Consumer Services   VCDAX   VCR
Industrials   VINAX   VIS
Consumer Goods   VCSAX   VDC
Energy   VENAX   VDE
Basic Materials   VMIAX   VAW
Utilities   VUIAX   VPU
Telecommunications   VTCAX   VOX

One option is just to equal weight them. But if you want the market weight, as of 4/30 it's:
Basic Materials   2.80%   2.80%
Consumer Goods   9.70%   9.80%
Consumer Services   13.80%   13.80%
Financials   18.80%   18.80%
Health Care   13.50%   13.40%
Industrials   12.50%   12.50%
Oil & Gas   7.80%   7.80%
Technology   16.00%   16.00%
Telecommunications   2.10%   2.10%
Utilities   3.00%   3.00%


Yes! This seems like it could be a good compromise. I now understand that the extra fee for actively managed funds is a big money-sucker once you consider compounding.

People's minds seem to be both polarized and unyielding so I will relent on pushing my reasons for refusing to invest in oil & gas. forummm and bdc, however, seem to have presented low-ER solutions that can be custom tailored to avoid or focus on certain sectors. I might replace that "energy" sector (read: petroleum/coal) with a clean/alternative energy ETF from another firm. Also, I totally get that my money is piddly and will have no reasonable effect on much. But like I said earlier, people say virtually the exact same thing about voting, and yet someone always wins the election... just a thought.

What would the disadvantages of this approach be compared to a social index like VFTSE? This solution would have a much lower ER (.12% to .27%), but I don't really know what I'm talking about, because I don't know how managing ETF's works. I'd assume the relative weightings of the sectors would gradually change over time, and occasionally one might have to rebalance to restore it to match the weighting of the Vanguard Total Stock Market Index Fund?

Thanks for all the help so far, I've learned a lot and hope it's been useful to others as well.

nereo

  • Senior Mustachian
  • ********
  • Posts: 10771
  • Location: Just south of Canada
    • Here's how you can support science today:
Re: I don't like the Vanguard index funds
« Reply #51 on: June 04, 2015, 05:35:11 AM »

People's minds seem to be both polarized and unyielding so I will relent on pushing my reasons for refusing to invest in oil & gas. forummm and bdc, however, seem to have presented low-ER solutions that can be custom tailored to avoid or focus on certain sectors. I might replace that "energy" sector (read: petroleum/coal) with a clean/alternative energy ETF from another firm.

What would the disadvantages of this approach be compared to a social index like VFTSE?
well gee, I feel completely left out...
This disadvantages are that you'll have to manage your own portfolio with a multitude of ETFs, instead of having the ultra-simplistic one-or-two index funds, so it will be a bit more work.  Vanguard is nice in that they have commission-free ETF trading, but you do have to buy a minimum of 1 share per transaction, so you will have a minimum purchase price of >$100 for many of the ETFs each time.  With an index fund you can put in a much smaller amount (when I started I was contributing $25 every paycheck).

Quote
I thought I would have taxes deducted, as I had to fill out a W-2 and this is technically a stipend for a research internship - I don't go to school at the institution, so it is not a scholarship per se. But when the first half was deposited into my account, it was $2,500 even, no taxes deducted. What's the next step now?
If your scholarship is not taxed as 'earned income' then it will not count towards the amount you can contribute towards an IRA. You can still buy ETF funds at Vanguard in a taxable account, or alternatively if you have any other job that income will count. 

nocoast

  • 5 O'Clock Shadow
  • *
  • Posts: 10
Re: I don't like the Vanguard index funds
« Reply #52 on: June 04, 2015, 07:46:33 AM »
well gee, I feel completely left out...
This disadvantages are that you'll have to manage your own portfolio with a multitude of ETFs, instead of having the ultra-simplistic one-or-two index funds, so it will be a bit more work.  Vanguard is nice in that they have commission-free ETF trading, but you do have to buy a minimum of 1 share per transaction, so you will have a minimum purchase price of >$100 for many of the ETFs each time.  With an index fund you can put in a much smaller amount (when I started I was contributing $25 every paycheck).

Quote
I thought I would have taxes deducted, as I had to fill out a W-2 and this is technically a stipend for a research internship - I don't go to school at the institution, so it is not a scholarship per se. But when the first half was deposited into my account, it was $2,500 even, no taxes deducted. What's the next step now?
If your scholarship is not taxed as 'earned income' then it will not count towards the amount you can contribute towards an IRA. You can still buy ETF funds at Vanguard in a taxable account, or alternatively if you have any other job that income will count.

*forummm, bdc, and nereo ;) my bad

Can I purchase these ETF's and later move them into an IRA? I don't get why I shouldn't be allowed to contribute to an IRA; is there any workaround? What if I just paid the social security tax on the $5000?

arebelspy

  • Administrator
  • Senior Mustachian
  • *****
  • Posts: 28013
  • Age: -999
  • Location: Seattle, WA
Re: I don't like the Vanguard index funds
« Reply #53 on: June 04, 2015, 07:56:14 AM »
Only earned income counts. For example, my rental profits in ER will not let me contribute to a retirement account.

You're young, you'll have plenty of time to contribute to retirement accounts, starting your taxable (with the goal of adding to it when retirement accounts are maxed out in future years) is fine.

Great topic, and great discussion.
We are two former teachers who accumulated a bunch of real estate, retired at 29, spent some time traveling the world full time and are now settled with two kids.
If you want to know more about us, or how we did that, or see lots of pictures, this Business Insider profile tells our story pretty well.
We (rarely) blog at AdventuringAlong.com. Check out our Now page to see what we're up to currently.

forummm

  • Walrus Stache
  • *******
  • Posts: 7396
  • Senior Mustachian
Re: I don't like the Vanguard index funds
« Reply #54 on: June 04, 2015, 08:24:28 AM »
Another drawback of the sector ETF approach is that you'd be including potentially objectionable businesses like tobacco or firearms or whatever other things you don't want to invest in that can't be neatly split out by sector (like energy). So you can eliminate the consumer staples if you don't want to own tobacco stocks. Etc. But then you're cutting out a lot of stuff you presumably don't object to (like grocery stores).

arebelspy

  • Administrator
  • Senior Mustachian
  • *****
  • Posts: 28013
  • Age: -999
  • Location: Seattle, WA
I don't like the Vanguard index funds
« Reply #55 on: June 04, 2015, 08:30:58 AM »
If your beliefs are the strong, I consider putting together a well-balanced and well-diversified portfolio of a few dozen individually held stocks from large firms you don't object to.

Essentially 0 ongoing fees, even cheaper than Vanguard (but obviously some more risk).
We are two former teachers who accumulated a bunch of real estate, retired at 29, spent some time traveling the world full time and are now settled with two kids.
If you want to know more about us, or how we did that, or see lots of pictures, this Business Insider profile tells our story pretty well.
We (rarely) blog at AdventuringAlong.com. Check out our Now page to see what we're up to currently.

nereo

  • Senior Mustachian
  • ********
  • Posts: 10771
  • Location: Just south of Canada
    • Here's how you can support science today:
Re: I don't like the Vanguard index funds
« Reply #56 on: June 04, 2015, 08:35:11 AM »
Here's the official info on the IRA rules:
http://www.irs.gov/Retirement-Plans/Individual-Retirement-Arrangements-%28IRAs%29-1

To sum up: you can only contribute if you have earned income equal to the amount you are contributing.  For people under age 55, there is an annual limit of $5,500 per year.

The only way 'around' this with your scholarship is to take on a job.  Because you get an automatic $6,300 personal exemption you would pay $0 taxes on the first $6300 income you earn.  As 'Rebs said, you are young and you'll have lots of time to contribute to retirement accounts in future years. Any savings is better than no savings.

nereo

  • Senior Mustachian
  • ********
  • Posts: 10771
  • Location: Just south of Canada
    • Here's how you can support science today:
Re: I don't like the Vanguard index funds
« Reply #57 on: June 04, 2015, 08:40:10 AM »
If your beliefs are the strong, I consider putting together a well-balanced and well-diversified portfolio of a few dozen individually held stocks from large firms you don't object to.

Essentially 0 ongoing fees, even cheaper than Vanguard (but obviously some more risk).
That strategy might work for someone with tens of thousands of dollars to invest... but how could he possibly buy a few dozen individual stocks with $5k and not be screwed over by fees?  Are there really online brokerages that allow free trades with a balance of just $5k?  Everything I've seen requires 2-4x that amount for any of their free trades to kick in.

Interested in learning if you know of an online brokerage that allows this...

Cathy

  • Handlebar Stache
  • *****
  • Posts: 1046
Re: I don't like the Vanguard index funds
« Reply #58 on: June 04, 2015, 08:41:43 AM »
Here's the official info on the IRA rules:
http://www.irs.gov/Retirement-Plans/Individual-Retirement-Arrangements-%28IRAs%29-1

Unfortunately, the IRS website and IRS publications are actually not the official information on IRA rules. These IRS materials are a "good source of general information", but they are "nonbinding", and they "do not necessarily cover all positions for a given issue". They are not guaranteed to be correct and they "should not be cited to sustain a position". See IRM 4.10.7.2.8. IRS publications are of similar authority to any third-party treatment of the subject, such as articles on the MMM website.

forummm

  • Walrus Stache
  • *******
  • Posts: 7396
  • Senior Mustachian
Re: I don't like the Vanguard index funds
« Reply #59 on: June 04, 2015, 08:45:32 AM »
If your beliefs are the strong, I consider putting together a well-balanced and well-diversified portfolio of a few dozen individually held stocks from large firms you don't object to.

Essentially 0 ongoing fees, even cheaper than Vanguard (but obviously some more risk).

This is a good idea. You could even do more and select the firms you think are doing positive things. This is going to be much riskier of course, because presumably these will be smaller and less stable firms. Maybe split some stable firms you are OK with with some firms you really like.

arebelspy

  • Administrator
  • Senior Mustachian
  • *****
  • Posts: 28013
  • Age: -999
  • Location: Seattle, WA
Re: I don't like the Vanguard index funds
« Reply #60 on: June 04, 2015, 08:52:30 AM »
If your beliefs are the strong, I consider putting together a well-balanced and well-diversified portfolio of a few dozen individually held stocks from large firms you don't object to.

Essentially 0 ongoing fees, even cheaper than Vanguard (but obviously some more risk).
That strategy might work for someone with tens of thousands of dollars to invest... but how could he possibly buy a few dozen individual stocks with $5k and not be screwed over by fees?  Are there really online brokerages that allow free trades with a balance of just $5k?  Everything I've seen requires 2-4x that amount for any of their free trades to kick in.

Interested in learning if you know of an online brokerage that allows this...

I just googled free stock trades and found a bunch that seem like they should work.

Here was one example from one of the first Google hits:
http://www.nerdwallet.com/blog/investing/free-stock-trading/

TD Ameritrade, for example: Open an account with $2,000 and receive 60 days of free trades.

We are two former teachers who accumulated a bunch of real estate, retired at 29, spent some time traveling the world full time and are now settled with two kids.
If you want to know more about us, or how we did that, or see lots of pictures, this Business Insider profile tells our story pretty well.
We (rarely) blog at AdventuringAlong.com. Check out our Now page to see what we're up to currently.

SpicyMcHaggus

  • Bristles
  • ***
  • Posts: 309
  • Location: MKE, WI
Re: I don't like the Vanguard index funds
« Reply #61 on: June 04, 2015, 09:03:26 AM »
Another drawback of the sector ETF approach is that you'd be including potentially objectionable businesses like tobacco or firearms or whatever other things you don't want to invest in that can't be neatly split out by sector (like energy). So you can eliminate the consumer staples if you don't want to own tobacco stocks. Etc. But then you're cutting out a lot of stuff you presumably don't object to (like grocery stores).

Actually, the opposite. I'd like to buy only alcohol, tobacco and firearm manufacturers. Maybe I should start a hedge fund and get my trading symbol to be ATF.

TDAmeritrade also has a section of fee-free ETFs that includes some Vanguards. I posted the risk box picture of Vanguards that are available on TDAmeritrade to buy without trading fees and everyone was like "ohh we've seen the risk box before". I would put my 5k into those; provided you are not going to sell within 60 days of buying, trade fees are waived for the fee-free ETFs.

RichMoose

  • Pencil Stache
  • ****
  • Posts: 966
  • Location: Alberta
  • RiskManagement
    • The Rich Moose | A Better Canadian Finance Blog
Re: I don't like the Vanguard index funds
« Reply #62 on: June 04, 2015, 09:43:44 AM »
If your beliefs are the strong, I consider putting together a well-balanced and well-diversified portfolio of a few dozen individually held stocks from large firms you don't object to.

Essentially 0 ongoing fees, even cheaper than Vanguard (but obviously some more risk).

I agree 100%. Even in sector based investing there are a lot of companies that are unethical are choose to participate in poor business practices to boost the bottom line. I can give you some examples:

Consumer Discretionary - #1 holding Disney and #9 holding NIKE, repeatedly accused of supporting sweatshop and child labour for production of their merchandise, #5 holding is McD who is trying everything they can to prevent increased minimum wages

Consumer Staples - #4 Phillip Morris and #7 Altria both tobacco companies, #5 Walmart is also trying everything they can to prevent increased minimum wages and fight the organization of labour unions in their stores

Financials - don't get me started

Health Care - we could just go down the list for all the major drug company corruption, preventing inclusion of holistic remedies, vigorous protecting patents and trademarks so they can rip off/exclude from health care the several billion people that live on less than $2/day

Industrials - holdings #1, #2, #3, #6, #9 are all arms manufacturers, #10 Caterpillar benefits significantly from the destruction of our planet by mining

IT - #1 Apple uses child labour and obtains minerals resources from questionable sources (where child labour is used, poor working conditions, etc)

Materials - #1 du Pont and #3 Monsanto 'nough said

Utilities - lots of big coal plant people here, climate change fighters, extensive lobbying to prevent plant upgrades to reduce emissions (until it's paid for by the taxpayer of course)

So I think you have two choices: 1) buy individual stocks and do extensive research into their business practices in addition to the extensive research on valuations, price points, "moats", and so on.... or 2) just buy the total stock market and live your own life by making responsible choices that align with your beliefs.

I don't think buying an overpriced, under-performing "green fund" is really a good option. Just because the companies they are investing in have things like "Renewables" included in their names doesn't mean they are truly green or socially responsible corporations. Massive hydro-electric dams are considered renewables but that ignores the massive destruction done to rivers, fish/wildlife habitats, etc. The manufacture of solar panels produces a significant amount of highly toxic waste. These green funds generally exist so their managers can profit from misinformed people thinking they are making good choices.

beltim

  • Magnum Stache
  • ******
  • Posts: 2841
Re: I don't like the Vanguard index funds
« Reply #63 on: June 04, 2015, 09:57:20 AM »
well gee, I feel completely left out...
This disadvantages are that you'll have to manage your own portfolio with a multitude of ETFs, instead of having the ultra-simplistic one-or-two index funds, so it will be a bit more work.  Vanguard is nice in that they have commission-free ETF trading, but you do have to buy a minimum of 1 share per transaction, so you will have a minimum purchase price of >$100 for many of the ETFs each time.  With an index fund you can put in a much smaller amount (when I started I was contributing $25 every paycheck).

Quote
I thought I would have taxes deducted, as I had to fill out a W-2 and this is technically a stipend for a research internship - I don't go to school at the institution, so it is not a scholarship per se. But when the first half was deposited into my account, it was $2,500 even, no taxes deducted. What's the next step now?
If your scholarship is not taxed as 'earned income' then it will not count towards the amount you can contribute towards an IRA. You can still buy ETF funds at Vanguard in a taxable account, or alternatively if you have any other job that income will count.

*forummm, bdc, and nereo ;) my bad

Can I purchase these ETF's and later move them into an IRA? I don't get why I shouldn't be allowed to contribute to an IRA; is there any workaround? What if I just paid the social security tax on the $5000?

No, contributions to an IRA have to be in cash.  And no, you can't just pay Social Security tax on it either to make it earned income.  From   http://www.irs.gov/publications/p590a/ch01.html#en_US_2014_publink1000230355:
Quote
Wages, salaries, tips, professional fees, bonuses, and other amounts you receive for providing personal services are compensation. The IRS treats as compensation any amount properly shown in box 1 (Wages, tips, other compensation) of Form W-2, Wage and Tax Statement, provided that amount is reduced by any amount properly shown in box 11 (Nonqualified plans). Scholarship and fellowship payments are compensation for IRA purposes only if shown in box 1 of Form W-2.

I would not risk contributing until/unless you get a W-2 and see if the stipend money shows up in box 1.

nocoast

  • 5 O'Clock Shadow
  • *
  • Posts: 10
Re: I don't like the Vanguard index funds
« Reply #64 on: June 06, 2015, 12:50:06 AM »
Okay, so I played around with Excel a bit and took the weightings for the Vanguard Total Stock Market Index fund and replaced energy/oil & gas, basic materials, and utilities with a non-Vanguard clean energy ETF that looked pretty (QCLN). I tried to hit as close to the original ratios as possible given an initial investment, and then reinvested the leftovers into the clean energy ETF. I then took the results and put them into the Morningstar Portfolio X-Ray thing.

In the excel file, I cross-referenced all of the holdings in the Vanguard sector ETFs with the Carbon Underground 200, the top 200 companies worldwide with the most carbon reserves in the form of coal, oil & gas. There were a few in basic materials and utilties, and those sectors had such small weightings I threw them out. There was only one company left which was in consumer goods (Nacco Industries) but that sector had a heavy weight and taking it out would've messed up this experiment too much (they are a company that apparently makes forklifts, housewares and also mines coal - maybe this is only their houseware subsidiary).

I've attached the Excel file and a pdf of the Morningstar X-Ray. It's a little sloppily thrown together but the Excel file should make sense. It starts with a $10,000 investment just to make the numbers somewhat happy. What do you all think?
« Last Edit: June 06, 2015, 12:53:09 AM by nocoast »

pbkmaine

  • Walrus Stache
  • *******
  • Posts: 8357
  • Age: 63
  • Location: The Villages, Florida
Re: I don't like the Vanguard index funds
« Reply #65 on: June 06, 2015, 06:44:47 AM »

Another drawback of the sector ETF approach is that you'd be including potentially objectionable businesses like tobacco or firearms or whatever other things you don't want to invest in that can't be neatly split out by sector (like energy). So you can eliminate the consumer staples if you don't want to own tobacco stocks. Etc. But then you're cutting out a lot of stuff you presumably don't object to (like grocery stores).

Actually, the opposite. I'd like to buy only alcohol, tobacco and firearm manufacturers. Maybe I should start a hedge fund and get my trading symbol to be ATF.

TDAmeritrade also has a section of fee-free ETFs that includes some Vanguards. I posted the risk box picture of Vanguards that are available on TDAmeritrade to buy without trading fees and everyone was like "ohh we've seen the risk box before". I would put my 5k into those; provided you are not going to sell within 60 days of buying, trade fees are waived for the fee-free ETFs.

You want the Vice Fund. VICEX.

forummm

  • Walrus Stache
  • *******
  • Posts: 7396
  • Senior Mustachian
Re: I don't like the Vanguard index funds
« Reply #66 on: June 06, 2015, 06:57:25 AM »
Okay, so I played around with Excel a bit and took the weightings for the Vanguard Total Stock Market Index fund and replaced energy/oil & gas, basic materials, and utilities with a non-Vanguard clean energy ETF that looked pretty (QCLN). I tried to hit as close to the original ratios as possible given an initial investment, and then reinvested the leftovers into the clean energy ETF. I then took the results and put them into the Morningstar Portfolio X-Ray thing.

In the excel file, I cross-referenced all of the holdings in the Vanguard sector ETFs with the Carbon Underground 200, the top 200 companies worldwide with the most carbon reserves in the form of coal, oil & gas. There were a few in basic materials and utilties, and those sectors had such small weightings I threw them out. There was only one company left which was in consumer goods (Nacco Industries) but that sector had a heavy weight and taking it out would've messed up this experiment too much (they are a company that apparently makes forklifts, housewares and also mines coal - maybe this is only their houseware subsidiary).

I've attached the Excel file and a pdf of the Morningstar X-Ray. It's a little sloppily thrown together but the Excel file should make sense. It starts with a $10,000 investment just to make the numbers somewhat happy. What do you all think?

I don't see anything wrong with it, given your constraints.

nocoast

  • 5 O'Clock Shadow
  • *
  • Posts: 10
Re: I don't like the Vanguard index funds
« Reply #67 on: June 06, 2015, 04:27:13 PM »
With an index fund, as I understand, you can simply elect to automatically reinvest your earnings. But with this setup, each time I receive a payout, I'd have to purchase individual ETF's to keep the whole portfolio at roughly the weighting ratio of the Vanguard Total Stock Market Index fund, correct?

seattlecyclone

  • Magnum Stache
  • ******
  • Posts: 4979
  • Age: 34
  • Location: Seattle, WA
    • My blog
Re: I don't like the Vanguard index funds
« Reply #68 on: June 06, 2015, 06:38:59 PM »
Yes. Also over time the different asset classes will perform differently, which might mean you'll need to buy more of a few of the funds to keep everything in balance.

beltim

  • Magnum Stache
  • ******
  • Posts: 2841
Re: I don't like the Vanguard index funds
« Reply #69 on: June 06, 2015, 09:47:36 PM »
With an index fund, as I understand, you can simply elect to automatically reinvest your earnings. But with this setup, each time I receive a payout, I'd have to purchase individual ETF's to keep the whole portfolio at roughly the weighting ratio of the Vanguard Total Stock Market Index fund, correct?

Each ETF will distribute any dividends and you can reinvest them in the appropriate ETF.  Dividends probably won't differ by as much as returns, so you should follow seattlecyclones advice.

hexdexorex

  • Stubble
  • **
  • Posts: 159
Re: I don't like the Vanguard index funds
« Reply #70 on: June 06, 2015, 11:34:09 PM »
Divest = demand for shares goes down = lower stock prices = cheaper shares for the oil companies as they buy back shares = higher eps

The only time it would hurt a oil company would be if companies were issuing new shares which is far from what is happening. If somehow divesting stopped oil companies from drilling than oil prices would go up meaning more money for Russia and the middle east.

The only way to help is to cut demand for oil. If oil companies are behaving badly it's the government's job to regulate those companies.

Harvard/norway divesting does send a message but does nothing to oil companies. Unless all that cash is put into renewable energy development.

TrulyStashin

  • Handlebar Stache
  • *****
  • Posts: 1030
  • Location: Mid-Sized Southern City
Re: I don't like the Vanguard index funds
« Reply #71 on: June 09, 2015, 12:23:01 PM »
If your beliefs are the strong, I consider putting together a well-balanced and well-diversified portfolio of a few dozen individually held stocks from large firms you don't object to.

Essentially 0 ongoing fees, even cheaper than Vanguard (but obviously some more risk).

I agree 100%. Even in sector based investing there are a lot of companies that are unethical are choose to participate in poor business practices to boost the bottom line. I can give you some examples:

Consumer Discretionary - #1 holding Disney and #9 holding NIKE, repeatedly accused of supporting sweatshop and child labour for production of their merchandise, #5 holding is McD who is trying everything they can to prevent increased minimum wages

Consumer Staples - #4 Phillip Morris and #7 Altria both tobacco companies, #5 Walmart is also trying everything they can to prevent increased minimum wages and fight the organization of labour unions in their stores

Financials - don't get me started

Health Care - we could just go down the list for all the major drug company corruption, preventing inclusion of holistic remedies, vigorous protecting patents and trademarks so they can rip off/exclude from health care the several billion people that live on less than $2/day

Industrials - holdings #1, #2, #3, #6, #9 are all arms manufacturers, #10 Caterpillar benefits significantly from the destruction of our planet by mining

IT - #1 Apple uses child labour and obtains minerals resources from questionable sources (where child labour is used, poor working conditions, etc)

Materials - #1 du Pont and #3 Monsanto 'nough said

Utilities - lots of big coal plant people here, climate change fighters, extensive lobbying to prevent plant upgrades to reduce emissions (until it's paid for by the taxpayer of course)

So I think you have two choices: 1) buy individual stocks and do extensive research into their business practices in addition to the extensive research on valuations, price points, "moats", and so on.... or 2) just buy the total stock market and live your own life by making responsible choices that align with your beliefs.

I don't think buying an overpriced, under-performing "green fund" is really a good option. Just because the companies they are investing in have things like "Renewables" included in their names doesn't mean they are truly green or socially responsible corporations. Massive hydro-electric dams are considered renewables but that ignores the massive destruction done to rivers, fish/wildlife habitats, etc. The manufacture of solar panels produces a significant amount of highly toxic waste. These green funds generally exist so their managers can profit from misinformed people thinking they are making good choices.

The information here is not helpful and makes it seem like it is impossible to find companies with strong sustainability initiatives (not perfect, but committed to ongoing optimization).  Just off the top of my head, anyone willing to do a little research can use the publications from following organizations:

CDP (formerly known as "Carbon Disclosure Project" for a list of climate leaders) 
UN Global Compact
Prince of Wales Corporate Leaders Group on Climate Change
CERES
GRI

To identify companies with strong performance on ESG issues, such as (again, off the top of my head):

Nike (yes, Nike.  This post above is inaccurate/ outdated.  Nike has made great strides (ha, pun intended) in the last decade.)
Unilever
Levi Strauss
Ford Motor Company
Microsoft
Coca Cola
du Pont (yes, du Pont.  It ain't easy doing what they do and in their industry, they are high performers.  They take it seriously)
Nestle
FEMSA

And, here's a link to a white paper from Morgan Stanley on the superior performance of companies with strong sustainability initiatives:  http://www.morganstanley.com/sustainableinvesting/pdf/sustainable-reality.pdf.  I can do well by doing good at the same time.