Author Topic: 3 Years in Vanguard Funds - Low Performance - Switch?  (Read 9630 times)

Crazydude

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3 Years in Vanguard Funds - Low Performance - Switch?
« on: December 04, 2016, 06:06:42 AM »
So I've had mine and my wifes IRAs in these Vanguard Funds for almost 3 years (Feb 14):

VGHCX - Vanguard Health Care Fund Investor Shares https://personal.vanguard.com/us/funds/snapshot?FundId=0052&FundIntExt=INT
VSGAX - Vanguard Small-Cap Growth Index Fund Admiral https://personal.vanguard.com/us/funds/snapshot?FundId=5861&FundIntExt=INT#tab=1

They've had relatively low performance, and a grand total of 2.2% growth according to Vanguard in that time. Is it time to switch funds? Or should I stick it out. The small-cap is newer so hadn't really had a history before I bought in. We are both 26, so not looking to pull any money out soon.

Interest Compound

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Re: 3 Years in Vanguard Funds - Low Performance - Switch?
« Reply #1 on: December 04, 2016, 06:16:42 AM »
What was behind the decision to purchase these funds specifically?

Metric Mouse

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Re: 3 Years in Vanguard Funds - Low Performance - Switch?
« Reply #2 on: December 04, 2016, 06:46:51 AM »
Do you plan on working for awhile?

I'm not sure that I would bother switching, but possibly diverting the future contributions to different funds, if only to diversify.

That is unless you IPS says that you should chase returns - I would follow my plan no matter what some internet poster suggested.

TomTX

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Re: 3 Years in Vanguard Funds - Low Performance - Switch?
« Reply #3 on: December 04, 2016, 06:53:11 AM »
Why are you focused down on sectors instead of just being in the Total Stock Market?

Don't you realize that 3 years is "short term" for sector funds? You are more likely to jump to something that is performing now, but will underperform in the future.

Crazydude

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Re: 3 Years in Vanguard Funds - Low Performance - Switch?
« Reply #4 on: December 04, 2016, 07:22:08 AM »
What was behind the decision to purchase these funds specifically?

I simply looked at past performance and picked based on that. The second fund only had 1-2 years of performance so that was more of a gamble. I've been considering just switching to the total stock fund.

Interest Compound

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Re: 3 Years in Vanguard Funds - Low Performance - Switch?
« Reply #5 on: December 04, 2016, 07:41:13 AM »
What was behind the decision to purchase these funds specifically?

I simply looked at past performance and picked based on that. The second fund only had 1-2 years of performance so that was more of a gamble. I've been considering just switching to the total stock fund.

That's what I was expecting you to say.

Based on your past knowledge, picking based on past performance seemed like a good idea. Based on your current knowledge, do you still think it's a good idea? Why/Why not?

zut

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Re: 3 Years in Vanguard Funds - Low Performance - Switch?
« Reply #6 on: December 04, 2016, 07:44:08 AM »
Healthcare is a great sector to be in long term.  Short term maybe not so much.  FYI...I've been in VGHCX since 1997. 

It is a great great long term fund that has been on a tear for the last few years.  Take a look at the stock chart.  This fund has been on pause the last 2 years and is trending sideways.  Certainly this fund will be headed up again but maybe not until the unknown political healthcare climate is a little bit clearer.


Metric Mouse

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Re: 3 Years in Vanguard Funds - Low Performance - Switch?
« Reply #7 on: December 04, 2016, 07:47:02 AM »
Healthcare is a great sector to be in long term.  Short term maybe not so much.  FYI...I've been in VGHCX since 1997. 

It is a great great long term fund that has been on a tear for the last few years.  Take a look at the stock chart.  This fund has been on pause the last 2 years and is trending sideways.  Certainly this fund will be headed up again but maybe not until the unknown political healthcare climate is a little bit clearer.

That was kinda my thoughts, which is why, if I were in the op's position, I wouldn't dump it and move everything - but I would shift future contributions to a different fund for awhile.

Heckler

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Re: 3 Years in Vanguard Funds - Low Performance - Switch?
« Reply #8 on: December 04, 2016, 07:53:41 AM »

zut

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Re: 3 Years in Vanguard Funds - Low Performance - Switch?
« Reply #9 on: December 04, 2016, 07:56:39 AM »
Healthcare is a great sector to be in long term.  Short term maybe not so much.  FYI...I've been in VGHCX since 1997. 

It is a great great long term fund that has been on a tear for the last few years.  Take a look at the stock chart.  This fund has been on pause the last 2 years and is trending sideways.  Certainly this fund will be headed up again but maybe not until the unknown political healthcare climate is a little bit clearer.

That was kinda my thoughts, which is why, if I were in the op's position, I wouldn't dump it and move everything - but I would shift future contributions to a different fund for awhile.

If you are looking for something that is on-sale...this might be one of those sectors to be accumulating if you believe healthcare is going to go up in the future.  Just my thoughts.

arebelspy

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Re: 3 Years in Vanguard Funds - Low Performance - Switch?
« Reply #10 on: December 04, 2016, 08:01:48 AM »
Switching investments every few years to chase returns is how the average investor underperforms.

Create an IPS, and stick to it.

That may mean switching now, but don't switch randomly.  Make a plan.

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MustacheAndaHalf

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Re: 3 Years in Vanguard Funds - Low Performance - Switch?
« Reply #11 on: December 04, 2016, 08:14:01 AM »
From reading Larry Swedroe I learned about anomalies in models of the stock market.  One of the things that's difficult to model is why "small growth" stocks have done so badly over time.
https://www.portfoliovisualizer.com/backtest-asset-class-allocation

Portfolio Visualizer 1977-2016 shows the following:
US total stock +7.0% real, +/- 15.4%
US small growth +7.2% real, +/- 21.2%
US small value +10.7% real, +/- 17.6%

So what I see is small/growth doing much worse than small/value in the past 40 years.  And while keeping up with the broad US market, it has much more volatility.  Is there something to small/growth stocks not reflected in my information here?

Indexer

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Re: 3 Years in Vanguard Funds - Low Performance - Switch?
« Reply #12 on: December 04, 2016, 08:30:39 AM »
So I've had mine and my wifes IRAs in these Vanguard Funds for almost 3 years (Feb 14):

VGHCX - Vanguard Health Care Fund Investor Shares https://personal.vanguard.com/us/funds/snapshot?FundId=0052&FundIntExt=INT
VSGAX - Vanguard Small-Cap Growth Index Fund Admiral https://personal.vanguard.com/us/funds/snapshot?FundId=5861&FundIntExt=INT#tab=1

They've had relatively low performance, and a grand total of 2.2% growth according to Vanguard in that time. Is it time to switch funds? Or should I stick it out. The small-cap is newer so hadn't really had a history before I bought in. We are both 26, so not looking to pull any money out soon.

I'm going to second everything Interest Compound, Heckler, and arebelspy have said. Instead of picking funds based on performance build a plan based on your goals and then stick to that plan for the long term. Here is a good link: https://personal.vanguard.com/us/insights/investingprinciples

I also wanted to point out that the investor share class of a Vanguard fund is normally older than the Admiral share class. The Vanguard small cap growth index fund has actually been around since 1998. They introduced the Admiral share class in 2011, but the fund is much older than that.

Crazydude

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Re: 3 Years in Vanguard Funds - Low Performance - Switch?
« Reply #13 on: December 04, 2016, 08:43:55 AM »
All good input. I know 3 years is still very short term, but I wanted to gauge what others thought of these funds too. I know now I'm going to keep them both, but not sure yet whether I'll continue adding to them or adding elsewhere.

Metric Mouse

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Re: 3 Years in Vanguard Funds - Low Performance - Switch?
« Reply #14 on: December 04, 2016, 08:49:11 AM »
All good input. I know 3 years is still very short term, but I wanted to gauge what others thought of these funds too. I know now I'm going to keep them both, but not sure yet whether I'll continue adding to them or adding elsewhere.

Awesome! There is always a lot of information on this site! Several posters are very knowledgeable, and almost everyone is super helpful. Sounds like you're asking the right questions and moving in the right direction with your investments. Good luck!

Heckler

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Re: 3 Years in Vanguard Funds - Low Performance - Switch?
« Reply #15 on: December 04, 2016, 09:25:07 AM »
Looking at the small cap growth chart, it looks to me like you bought three years ago in 2014, it went down in value in 2015 and has been rising in value in 2016.  Now its just slightly above when you bought it.

Consider what would have happened if you'd been regularily contributing while it was heading down in 2015.  Those lower cost 2015 contributions would have gained more in 2016.   

How does this info help you update your IPS?
« Last Edit: December 04, 2016, 09:48:50 AM by Heckler »

Retire-Canada

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Re: 3 Years in Vanguard Funds - Low Performance - Switch?
« Reply #16 on: December 04, 2016, 09:46:36 AM »
Personally I think the most important thing with investing is to have a plan you truly believe in. It's the only way you'll be able to watch your money take the wild ride that it has to take on the way to generating your FIRE wealth and be confident of your decisions. In particular not only staying the course when investments tank for a while, but throwing new money at them when they are down.

I have no opinion about your two funds noted above, but I do agree with the previous posters about the need for you to decide on an investment plan you can follow for decades. I would work on that and just pretend the existing investments didn't exist. If your plan doesn't include those funds or something similar than I would cash them out and move the money to the asset allocation laid out in your plan. Short term pain for long term gain.

Interest Compound

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Re: 3 Years in Vanguard Funds - Low Performance - Switch?
« Reply #17 on: December 04, 2016, 10:02:02 AM »
What was behind the decision to purchase these funds specifically?

I simply looked at past performance and picked based on that. The second fund only had 1-2 years of performance so that was more of a gamble. I've been considering just switching to the total stock fund.

That's what I was expecting you to say.

Based on your past knowledge, picking based on past performance seemed like a good idea. Based on your current knowledge, do you still think it's a good idea? Why/Why not?

Crazydude, any thoughts on my question? :)

Crazydude

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Re: 3 Years in Vanguard Funds - Low Performance - Switch?
« Reply #18 on: December 04, 2016, 11:46:56 AM »
Looking at the small cap growth chart, it looks to me like you bought three years ago in 2014, it went down in value in 2015 and has been rising in value in 2016.  Now its just slightly above when you bought it.

Consider what would have happened if you'd been regularily contributing while it was heading down in 2015.  Those lower cost 2015 contributions would have gained more in 2016.   

How does this info help you update your IPS?

I did buy in 2015 in fact. I've been contributing the max every year in one lump sums.

Crazydude

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Re: 3 Years in Vanguard Funds - Low Performance - Switch?
« Reply #19 on: December 04, 2016, 11:53:52 AM »
What was behind the decision to purchase these funds specifically?

I simply looked at past performance and picked based on that. The second fund only had 1-2 years of performance so that was more of a gamble. I've been considering just switching to the total stock fund.

That's what I was expecting you to say.

Based on your past knowledge, picking based on past performance seemed like a good idea. Based on your current knowledge, do you still think it's a good idea? Why/Why not?

Crazydude, any thoughts on my question? :)

I agree past performance does not indicate future performance. But I do believe it's as good a gauge as any. The longer it's been around, the better the gauge.

Shane

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Re: 3 Years in Vanguard Funds - Low Performance - Switch?
« Reply #20 on: December 04, 2016, 11:56:55 AM »
Read Jim Collins' book. It'll help you come up with a simple investment plan that works:

The Simple Path to Wealth: Your road map to financial independence and a rich, free life

Interest Compound

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Re: 3 Years in Vanguard Funds - Low Performance - Switch?
« Reply #21 on: December 04, 2016, 12:59:26 PM »
What was behind the decision to purchase these funds specifically?

I simply looked at past performance and picked based on that. The second fund only had 1-2 years of performance so that was more of a gamble. I've been considering just switching to the total stock fund.

That's what I was expecting you to say.

Based on your past knowledge, picking based on past performance seemed like a good idea. Based on your current knowledge, do you still think it's a good idea? Why/Why not?

Crazydude, any thoughts on my question? :)

I agree past performance does not indicate future performance. But I do believe it's as good a gauge as any. The longer it's been around, the better the gauge.

Interesting. How did you come to that conclusion? By that I mean, on what information are you basing your assertion that past performance is a good gauge, and that it gets better with time?

Crazydude

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Re: 3 Years in Vanguard Funds - Low Performance - Switch?
« Reply #22 on: December 04, 2016, 03:47:41 PM »
Interesting. How did you come to that conclusion? By that I mean, on what information are you basing your assertion that past performance is a good gauge, and that it gets better with time?

Think of it this way. Let's say you're an employer looking to hire an employee. You have an application and references. You call the references and they say this person has not been very good at their job, poor performance, etc. You interview them, they say, "Look...for the past 10 years, yes I've been a bad employee. I've not done a good job. But when I work for you, trust me, I'll work harder, be better!

You interview another employee who has a history of success and doing well, working hard. His references say the same.

In both cases you are not absolutely guaranteed success from either candidate, but which one will you choose?

Christof

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Re: 3 Years in Vanguard Funds - Low Performance - Switch?
« Reply #23 on: December 04, 2016, 04:28:24 PM »
The first one.... It's called the anchoring bias. ;-)

On a more serious note, though. I am an employeer. If I'd look at references than mainly to see much effort they made to present them and how organized the are. The actual content is rather worthless.

Interest Compound

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Re: 3 Years in Vanguard Funds - Low Performance - Switch?
« Reply #24 on: December 04, 2016, 04:35:11 PM »
Interesting. How did you come to that conclusion? By that I mean, on what information are you basing your assertion that past performance is a good gauge, and that it gets better with time?

Think of it this way. Let's say you're an employer looking to hire an employee. You have an application and references. You call the references and they say this person has not been very good at their job, poor performance, etc. You interview them, they say, "Look...for the past 10 years, yes I've been a bad employee. I've not done a good job. But when I work for you, trust me, I'll work harder, be better!

You interview another employee who has a history of success and doing well, working hard. His references say the same.

In both cases you are not absolutely guaranteed success from either candidate, but which one will you choose?

Great example! You're very close to being spot-on here, you just need to shift your perspective a bit.

Instead of thinking of the funds as the employees, think of them as Indexing vs Non-Indexing. Ok, let's try it, and I'll fill in some numbers:

-------------------
Let's say you're an employer looking to hire an employee for a very important job. This job is so important, that if you have a bad year, it's almost impossible to catch up to your competition. In fact, if the employee performs half as well one year, they'd need to do twice as well the next year just to break even with your competitors. So it's very important to not pick anyone who might have a bad year.

You have an application and references. You call the references and they say this person has not been very good at their job, poor performance, etc. You interview them, they say:

"Look...for the past 100+ years (every year on record), yes I've been a bad employee. There's less than a 1% chance I'll be successful for you over the long run. In any particular year, I have a 37% chance of being successful, but since it's so hard to catchup, the longer I work for you, the less of a chance I have at being successful overall. Even worse, it's almost impossible to predict when I'm going to do a good job. Most people think I'm more likely to succeed after I've had a successful year, but I'm actually less likely to succeed at those times. I've not done a good job. But when I work for you, trust me, I'll work harder, be better!

You interview another employee who has a history of success and doing well, working hard. His references say the same. He is also mathematically guaranteed to not have a bad year. Every year, he is guaranteed to beat or match at least half of his competition.

In both cases you are not absolutely guaranteed success from either candidate, but which one will you choose?
-------------------


« Last Edit: December 04, 2016, 05:16:14 PM by Interest Compound »

Interest Compound

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Re: 3 Years in Vanguard Funds - Low Performance - Switch?
« Reply #25 on: December 04, 2016, 05:45:47 PM »
Applying that logic to your choice of VGHCX, in 2013 you might've looked back on the past returns and seen something like this:



Or even this:



And you might have not realized two important facts hidden in those charts:
  • VGHCX underperformed the market more than half the years
  • Almost all of the overall VGHCX outperformance occurred in 2008. In other words, this is not a "hey look, VGHCX is consistently beating the market!" chart. It's a "hey look, if you weren't invested in VGHCX specifically in 2008, there would be nothing special about this chart"

marty998

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Re: 3 Years in Vanguard Funds - Low Performance - Switch?
« Reply #26 on: December 04, 2016, 11:59:54 PM »

What does your IPS say to do?

https://www.bogleheads.org/wiki/Investment_policy_statement

Username checks out.

You ask the question knowing full well the OP doesn't have one? :D

Heckler

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Re: 3 Years in Vanguard Funds - Low Performance - Switch?
« Reply #27 on: December 05, 2016, 09:52:49 AM »

What does your IPS say to do?

https://www.bogleheads.org/wiki/Investment_policy_statement

Username checks out.

You ask the question knowing full well the OP doesn't have one? :D

Not heckling.  I'm asking open ended questions to allow the recipient to come to his own conclusions.  Management 101.

markpst

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Re: 3 Years in Vanguard Funds - Low Performance - Switch?
« Reply #28 on: December 05, 2016, 10:29:12 AM »
I think investing some in small caps is a good idea. The total market fund is cap-weighted, so the large stocks such as Apple make up a large percentage of your portfolio. The top ten stocks make up 16.1% of VTSMX as of 10/31/16.
« Last Edit: December 05, 2016, 10:49:57 AM by markpst »

BTDretire

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Re: 3 Years in Vanguard Funds - Low Performance - Switch?
« Reply #29 on: December 05, 2016, 03:39:29 PM »
Interesting. How did you come to that conclusion? By that I mean, on what information are you basing your assertion that past performance is a good gauge, and that it gets better with time?

Think of it this way. Let's say you're an employer looking to hire an employee. You have an application and references. You call the references and they say this person has not been very good at their job, poor performance, etc. You interview them, they say, "Look...for the past 10 years, yes I've been a bad employee. I've not done a good job. But when I work for you, trust me, I'll work harder, be better!

You interview another employee who has a history of success and doing well, working hard. His references say the same.

In both cases you are not absolutely guaranteed success from either candidate, but which one will you choose?

  The market goes through cycles, just as sectors go through cycles.
Employees? some do, some don't.

Metric Mouse

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Re: 3 Years in Vanguard Funds - Low Performance - Switch?
« Reply #30 on: December 05, 2016, 08:20:50 PM »

What does your IPS say to do?

https://www.bogleheads.org/wiki/Investment_policy_statement

Username checks out.

You ask the question knowing full well the OP doesn't have one? :D

Not heckling.  I'm asking open ended questions to allow the recipient to come to his own conclusions.  Management 101.

Effective communication.  Also can be effective interrogation.  :)

Cycling Stache

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Re: 3 Years in Vanguard Funds - Low Performance - Switch?
« Reply #31 on: December 06, 2016, 08:56:48 AM »
All of these posts were just nice ways of saying that you apparently didn't know what you were doing and made a mistake.  So, to make it easy, when you don't know more than the market, buy the market.

VTSAX.

If the funds you have aren't a significant portion of your net worth, you can keep them there and see if your hunch paid off.  All the rest of your money should be auto-invested in VTSAX so you don't do any more thinking.  Then enjoy the rest of your life, and let the market work for you.

It's the boring way to get rich.

Crazydude

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Re: 3 Years in Vanguard Funds - Low Performance - Switch?
« Reply #32 on: December 07, 2016, 05:11:43 AM »
All of these posts were just nice ways of saying that you apparently didn't know what you were doing and made a mistake.  So, to make it easy, when you don't know more than the market, buy the market.

VTSAX.

If the funds you have aren't a significant portion of your net worth, you can keep them there and see if your hunch paid off.  All the rest of your money should be auto-invested in VTSAX so you don't do any more thinking.  Then enjoy the rest of your life, and let the market work for you.

It's the boring way to get rich.

Yes I know. Everyone here is VTSAX or go home.

Metric Mouse

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Re: 3 Years in Vanguard Funds - Low Performance - Switch?
« Reply #33 on: December 07, 2016, 05:50:54 AM »
All of these posts were just nice ways of saying that you apparently didn't know what you were doing and made a mistake.  So, to make it easy, when you don't know more than the market, buy the market.

VTSAX.

If the funds you have aren't a significant portion of your net worth, you can keep them there and see if your hunch paid off.  All the rest of your money should be auto-invested in VTSAX so you don't do any more thinking.  Then enjoy the rest of your life, and let the market work for you.

It's the boring way to get rich.

Yes I know. Everyone here is VTSAX or go home.

Mistake was a strong word, and probably not accurate - but I hope you have found some actionable advice from the rest of the comments.

Cycling Stache

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Re: 3 Years in Vanguard Funds - Low Performance - Switch?
« Reply #34 on: December 07, 2016, 08:21:03 AM »
All of these posts were just nice ways of saying that you apparently didn't know what you were doing and made a mistake.  So, to make it easy, when you don't know more than the market, buy the market.

VTSAX.

If the funds you have aren't a significant portion of your net worth, you can keep them there and see if your hunch paid off.  All the rest of your money should be auto-invested in VTSAX so you don't do any more thinking.  Then enjoy the rest of your life, and let the market work for you.

It's the boring way to get rich.

Yes I know. Everyone here is VTSAX or go home.

Mistake was a strong word, and probably not accurate - but I hope you have found some actionable advice from the rest of the comments.

Okay, let's add a little nuance to the point (and hopefully soften the tone).  The fact that you invested the money in Vanguard funds rather than spending it, going in debt, etc. is a huge positive.  The fact that you picked broad funds rather than just cherry picking a couple of companies also helps.  The fact that you're up rather than down is good.  The fact that you're not making quick turnovers in your portfolio is also great.

The "mistake" here was just trying to outthink the market.  This site more than most others values index funds because it values rational analysis of situations.  If you do not know more than the market, trying to make decisions based on that lack of knowledge is irrational.  Since most people don't know more than the market, their best decision is to buy the market.

You're in good shape.  You asked whether you should change.  If you do not have specialized information (unknown to the markets) about these particular sectors, then yes, you should switch to a general index fund, which is an acknowledgment that you (and me, and probably everyone else on this forum) don't know whether any particular sector will do better than any other going forward.  Otherwise, you're just placing a bet.  It might pay off, but it's not the rational approach.
« Last Edit: December 07, 2016, 09:05:03 AM by Cycling Stache »

ysette9

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Re: 3 Years in Vanguard Funds - Low Performance - Switch?
« Reply #35 on: December 07, 2016, 08:37:20 AM »
Quote
Yes I know. Everyone here is VTSAX or go home.

Close. :) My personal cup of tea is a mix of VTSAX and VTIAX for a healthy dose of international exposure. Same principle though.

zilamonster

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Re: 3 Years in Vanguard Funds - Low Performance - Switch?
« Reply #36 on: December 07, 2016, 10:09:02 AM »
I generally prefer small cap value to growth since value stocks generally have a low price to earnings ratio where as growth stocks generally have a higher PE ratio. The basic idea of value is that the market is under valuing the stocks. Generally small cap value out performs growth.

My personal portfolio consists of total stock market (VTI) and small cap value (VBR) in my IRA. In my taxable I have VTI and VB and in the 401k I use FUSVX, Fidelity's version of the S&P 500 index, as it's the cheapest option.


arebelspy

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Re: 3 Years in Vanguard Funds - Low Performance - Switch?
« Reply #37 on: December 07, 2016, 12:22:28 PM »


The basic idea of value is that the market is under valuing the stocks.

But the market is smart enough to identify these stocks, and put them in an index, but not smart enough to then purchase them until they're correctly valued?


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zilamonster

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Re: 3 Years in Vanguard Funds - Low Performance - Switch?
« Reply #38 on: December 07, 2016, 02:13:09 PM »


The basic idea of value is that the market is under valuing the stocks.

But the market is smart enough to identify these stocks, and put them in an index, but not smart enough to then purchase them until they're correctly valued?

I'm not sure I completely understand your question. These companies are held in an index created by Vanguard, DFA, Fidelity, or whichever mutual fund company creates the index, based off of their PE Ratio. Once a company is out of the designated "value" window it is removed from the index when it re-balances.

arebelspy

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Re: 3 Years in Vanguard Funds - Low Performance - Switch?
« Reply #39 on: December 07, 2016, 03:45:38 PM »


The basic idea of value is that the market is under valuing the stocks.

But the market is smart enough to identify these stocks, and put them in an index, but not smart enough to then purchase them until they're correctly valued?

I'm not sure I completely understand your question. These companies are held in an index created by Vanguard, DFA, Fidelity, or whichever mutual fund company creates the index, based off of their PE Ratio. Once a company is out of the designated "value" window it is removed from the index when it re-balances.
But why wouldn't the market know whatever metric is being used to qualify them for the index and buy them, increasing the price, until they no longer qualified?

I mean, people are looking for value all the time. And now you're saying "just look at this index for a list of undervalued stocks."

Why would they stay undervalued in any sort of timeframe over a day or two?

There's a reason they're priced what they are, and it's not because they're some hidden gem.
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zilamonster

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Re: 3 Years in Vanguard Funds - Low Performance - Switch?
« Reply #40 on: December 07, 2016, 05:28:31 PM »


The basic idea of value is that the market is under valuing the stocks.

But the market is smart enough to identify these stocks, and put them in an index, but not smart enough to then purchase them until they're correctly valued?

I'm not sure I completely understand your question. These companies are held in an index created by Vanguard, DFA, Fidelity, or whichever mutual fund company creates the index, based off of their PE Ratio. Once a company is out of the designated "value" window it is removed from the index when it re-balances.
But why wouldn't the market know whatever metric is being used to qualify them for the index and buy them, increasing the price, until they no longer qualified?

I mean, people are looking for value all the time. And now you're saying "just look at this index for a list of undervalued stocks."

Why would they stay undervalued in any sort of timeframe over a day or two?

There's a reason they're priced what they are, and it's not because they're some hidden gem.

I agree there are no hidden gems and get rich quick schemes. Perhaps undervalued was the incorrect term to use. The metric that is used is commonly known, it's the Price to Earnings ratio. Anyone can calculate this value. If the Price of the stock increases like you say, company earnings won't increase, therefore a higher price to earnings ratio.

Historically Value has outperformed Growth.

arebelspy

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Re: 3 Years in Vanguard Funds - Low Performance - Switch?
« Reply #41 on: December 07, 2016, 06:47:32 PM »
I agree there are no hidden gems and get rich quick schemes. Perhaps undervalued was the incorrect term to use. The metric that is used is commonly known, it's the Price to Earnings ratio. Anyone can calculate this value. If the Price of the stock increases like you say, company earnings won't increase, therefore a higher price to earnings ratio.

But investors KNOW this is the P/E ratio.  As you said, anyone can calculate that.

So why wouldn't they get bought up until their P/E ratio was higher?

It's because that's what the market values them at.  In other words, there's a reason their P/E is low.  Probably due to projected future earnings, recent bad news, or any other number of reasons.  But they're not just mistakenly priced or hidden gems or anything.
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Car Jack

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Re: 3 Years in Vanguard Funds - Low Performance - Switch?
« Reply #42 on: December 08, 2016, 06:13:56 AM »
So I've had mine and my wifes IRAs in these Vanguard Funds for almost 3 years (Feb 14):

VGHCX - Vanguard Health Care Fund Investor Shares https://personal.vanguard.com/us/funds/snapshot?FundId=0052&FundIntExt=INT
VSGAX - Vanguard Small-Cap Growth Index Fund Admiral https://personal.vanguard.com/us/funds/snapshot?FundId=5861&FundIntExt=INT#tab=1

They've had relatively low performance, and a grand total of 2.2% growth according to Vanguard in that time. Is it time to switch funds? Or should I stick it out. The small-cap is newer so hadn't really had a history before I bought in. We are both 26, so not looking to pull any money out soon.

Undiversified, high cost health care (0.36%) in investor shares, where admiral shares ($10k min) would reduce cost but not diversification problems.  Sell.  Jack's rule is that anything over 0.2% ER is a rip off.

Small cap ER 0.08%.  Not a bad cost but again, no diversification.

Sell it all and buy total US stock if you want high flying equity.  Do you have bonds and maybe international stocks elsewhere?  Buy the entire market.  Otherwise, suffer the ups and downs of whatever slice you pick.

Crazydude

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Re: 3 Years in Vanguard Funds - Low Performance - Switch?
« Reply #43 on: December 08, 2016, 07:42:55 AM »
Interesting to see where this conversation has went. As for me, I think I'm going to keep the two funds I have, but contribute future dollars to VTSAX.

Metric Mouse

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Re: 3 Years in Vanguard Funds - Low Performance - Switch?
« Reply #44 on: December 08, 2016, 09:20:17 AM »
Interesting to see where this conversation has went. As for me, I think I'm going to keep the two funds I have, but contribute future dollars to VTSAX.

Great plan. Good luck!

ltt

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Re: 3 Years in Vanguard Funds - Low Performance - Switch?
« Reply #45 on: December 10, 2016, 09:18:16 PM »
I own VG Health Care as Admiral Shares and have for over a decade.  Haven't added a penny to it.  It's done well over the long haul, but when looking at monthly market gain/losses over the past 3 years, it  hasn't seemed to perform as well overall as in the past.  And every time President-elect Trump mentions something about health care, such as wanting to cut the prices of medicines, etc., the health care fund seems to take a hit.  I don't know--we'll see.  I may be needing to make a change also. 

TomTX

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Re: 3 Years in Vanguard Funds - Low Performance - Switch?
« Reply #46 on: December 11, 2016, 04:54:58 AM »
All of these posts were just nice ways of saying that you apparently didn't know what you were doing and made a mistake.  So, to make it easy, when you don't know more than the market, buy the market.

VTSAX.

If the funds you have aren't a significant portion of your net worth, you can keep them there and see if your hunch paid off.  All the rest of your money should be auto-invested in VTSAX so you don't do any more thinking.  Then enjoy the rest of your life, and let the market work for you.

It's the boring way to get rich.

Yes I know. Everyone here is VTSAX or go home.

Well, if you can get VITSX the expenses are slightly lower.

Proud Foot

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Re: 3 Years in Vanguard Funds - Low Performance - Switch?
« Reply #47 on: December 13, 2016, 11:03:59 AM »
Interesting. How did you come to that conclusion? By that I mean, on what information are you basing your assertion that past performance is a good gauge, and that it gets better with time?

Think of it this way. Let's say you're an employer looking to hire an employee. You have an application and references. You call the references and they say this person has not been very good at their job, poor performance, etc. You interview them, they say, "Look...for the past 10 years, yes I've been a bad employee. I've not done a good job. But when I work for you, trust me, I'll work harder, be better!

You interview another employee who has a history of success and doing well, working hard. His references say the same.

In both cases you are not absolutely guaranteed success from either candidate, but which one will you choose?

I do agree that looking at past performance is a metric that needs to be included in your analysis but there is more to it as well. Did you look at more than just the past performance numbers before making your decision?

 For me personally I own VGHCX and what drew me to it was the past performance numbers but I did more research into the fund and sector.  I looked at the managers and how long they had been at this fund, other funds they have managed and the performance of those, if there was any indications of changes in managers.  I also read as much as I could about the healthcare sector, particularly how the ACA would impact it.  Unfortunately I did not keep my research notes to support my conclusion but I believed it was still a good long term investment to supplement my total portfolio. 

Keep in mind also that you are only looking at a three year window, particularly one where a lot of the new ACA regulations came into effect.  You will have more volatility when your investments are all within the same sector. (possible exception being the consumer staples sector)