Author Topic: Shift from S&P to Nasdaq...also to managed fund in 403(b)?  (Read 1795 times)

uneven_cyclist

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Shift from S&P to Nasdaq...also to managed fund in 403(b)?
« on: October 26, 2021, 10:42:17 AM »
Greetings all!

For the past few years, my wife and I have been investing for retirement in ITOT through our brokerage (IRAs etc)...this fund tracks the S&P 1500.  At work, we have been investing in GRMSX through 403(b) accts.  This is an index fund that tracks the S&P 500.

I have been comparing annual returns of the S&P 500 against the NASDAQ and it seems like it makes a lot of sense to invest in indexes/funds that track the NASDAQ.

In our brokerage, I found an ETF, ONEQ that tracks the NASDAQ and at work I found a managed fund called FAGAX...would these be good options?  I've also looked at QQQ as a sort of benchmark ETF that tracks the NASDAQ although I do not believe that it would be commission-free at my brokerage and so that was one red flag, but I am not sure if it might not be worth investing in it anyway if the returns would be likely to be high enough to offset the commissions?

I'm not thrilled about investing in a managed fund (as opposed to an index or an ETF) at work because the fees are significantly higher (1.06% as opposed to 0.6% for GRMSX) but the returns on FAGAX seem to have been significantly higher than those on comparable index funds that are offered through our retirement plan and so it seems like it would be worth it to invest in a managed fund even though this goes against MMM principles to some extent. 

Thoughts on this strategy?  Advice/considerations?

We are about 7 years away from retirement (hoping) with about 350k invested at this point.

I would be grateful for any advice, comments, or guidance.  Thanks all for your time!

boarder42

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Re: Shift from S&P to Nasdaq...also to managed fund in 403(b)?
« Reply #1 on: October 26, 2021, 11:23:07 AM »
you're improperly evaluating a change to your asset allocation based on short term recent returns.  If you're going to change your AA you need far more data than this has been doing better for the last 15-20 years.  the funds leading the nasdaq higher are also the funds at the top of the sp500 that have lead it to the 2nd highest peak in shiller PE history.  Chasing recent returns of other asset classes is never a reason to switch asset classes. 

and asset class maybe the wrong term here this is more a market sector since its primarily a tech index.  But the same logic applies that its bad to chase what's done well recently esp since that appears to be your only reason.
« Last Edit: October 26, 2021, 11:25:56 AM by boarder42 »

MustacheAndaHalf

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Re: Shift from S&P to Nasdaq...also to managed fund in 403(b)?
« Reply #2 on: October 26, 2021, 12:05:07 PM »
For the past few years, my wife and I have been investing for retirement in ITOT through our brokerage (IRAs etc)...this fund tracks the S&P 1500.  At work, we have been investing in GRMSX through 403(b) accts.  This is an index fund that tracks the S&P 500.
You mentioned the limits of your retirement accounts.  Is that the only place you save & invest for retirement?

The S&P 1500 is not a total stock market fund.  The small cap section, S&P 600, has just 600 stocks out of thousands.  ITOT ("iShares Core S&P Total U.S. Stock Market ETF") as a total stock market ETF, holding just under 3700 stocks.
https://www.ishares.com/us/products/239724/ishares-core-sp-total-us-stock-market-etf

Why does your company use GRMSX, with a 0.60% expense ratio, instead of IVV (iShares S&P 500) with a 0.03% expense ratio?  I'd favor ITOT over GRMSX.

The ONEQ ETF is actually quite reasonable.  It has an 0.21% expense ratio, compared to the 0.20% expense ratio of QQQ.  Because technology has done really well for over a decade, ETFs with more tech stocks have outperformed the market.

That is part of the story for Fidelity Advisor Growth Opportunities Fund (FAGAX), but they only allocate 38% tech right now, and even beat QQQ and VGT (Vanguard Info Tech ETF).  It would be better if that fund wasn't quite so large, at over $20 billion in assets.  As funds grow really large, they get more assets than they can invest well, and returns suffer.  Expect that to happen at some point.

Many, many years ago I invested some money in "Fidelity Select Electronics" which had a 3 year return of about +250%.  Soon after I bought, the fund dropped 20%... and then stayed there.  Too many people, like myself, had chased returns and given the fund too much cash to invest.  If you decide to chase returns, it's better to keep that limited to 10% of your portfolio.

uneven_cyclist

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Re: Shift from S&P to Nasdaq...also to managed fund in 403(b)?
« Reply #3 on: October 26, 2021, 04:56:07 PM »
Thanks for the thoughtful replies.  I wish that our company did offer IVV, but the offerings are fairly limited and so that is why I'm invested in GRMSX. 

@MustacheAndaHalf I had not considered the potential problems that might develop when a fund grows too large for its own good.  Re: why my company uses GRMSX...frustrating I know.  We only have a small menu of options when it comes to how we can invest our $$ in our retirement accts.  I do not know how or why things were set up the way they were or why our company went with the bank that they did...but...frustrating. 

@boarder42 Thanks for words of caution...I'll continue to investigate a bit...what you're saying makes sense in terms of the best positions from the NASDAQ buoying the S&P.  Although if you were to invest in the NASDAQ then it seems that you would also free yourself from getting anchored by some of the not-so-good positions from the S&P right?  And that, presumably, is why the NASDAQ outperforms the S&P? 

Thanks both for your thoughts and advice, I appreciate your time.  Going to investigate more with your recommendations in mind and to see if there might also be some other funds out there as well that I had not considered yet as well.

boarder42

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Re: Shift from S&P to Nasdaq...also to managed fund in 403(b)?
« Reply #4 on: October 26, 2021, 05:20:56 PM »
You're looking at a small sample size of out performance. It's not historically replicable. Picking something that has outperformed recently is a recipe for lower forward performance historically. Why not just buy Tesla it's up 80% in a few months?  That's the same logic you're applying to qqq.

MustacheAndaHalf

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Re: Shift from S&P to Nasdaq...also to managed fund in 403(b)?
« Reply #5 on: October 26, 2021, 05:46:19 PM »
Maybe the Supreme Court case of Tibble v Edison will help shed light on who is right and who is wrong.  An employee sued their employer over the 401(k) plan, alleging that Edison's 401(k) plan failed in their fiduciary duty.  They were required to seek out better expense ratios, and failed to do so.  The Supreme Court ruled that even though it had been a long time since the 401(k) plan was started, the fiduciary breach was ongoing, and resets the statute of limitations.
https://www.scotusblog.com/case-files/cases/tibble-v-edison-international/

When an employer screws you over with choices in the retirement plan (401k, 403b), you can sue them.  And you can even wait until you leave, because their failures extend the time you can take to sue them.

uneven_cyclist

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Re: Shift from S&P to Nasdaq...also to managed fund in 403(b)?
« Reply #6 on: October 27, 2021, 08:26:27 AM »
Maybe the Supreme Court case of Tibble v Edison will help shed light on who is right and who is wrong.  An employee sued their employer over the 401(k) plan, alleging that Edison's 401(k) plan failed in their fiduciary duty.  They were required to seek out better expense ratios, and failed to do so.  The Supreme Court ruled that even though it had been a long time since the 401(k) plan was started, the fiduciary breach was ongoing, and resets the statute of limitations.
https://www.scotusblog.com/case-files/cases/tibble-v-edison-international/

When an employer screws you over with choices in the retirement plan (401k, 403b), you can sue them.  And you can even wait until you leave, because their failures extend the time you can take to sue them.

Super helpful to know!

wageslave23

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Re: Shift from S&P to Nasdaq...also to managed fund in 403(b)?
« Reply #7 on: October 28, 2021, 07:42:52 AM »
If anything you would want to do the opposite.  Going along with what Boarder said, the goal is to buy low and sell high.  The Nasdaq has outperformed other indexes recently so the smart thing to do would be to sell it and buy underperforming indexes.  This is what rebalancing does, sells the better performers and buys the underperformers.  All of the gains in the Nasdaq are already priced in, past performance has no bearing (at least in a positive way) on future returns.  The time to switch was 10 years ago but nobody could have known that.

boarder42

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Re: Shift from S&P to Nasdaq...also to managed fund in 403(b)?
« Reply #8 on: October 28, 2021, 07:59:05 AM »
https://paulmerriman.com/4-fund-combo/

something like this may help you OP.  Gets you into a varied mix of assets outside of just the SP500 which is mostly what a cap weighted total market fund is and if you rebalance annually you're forced to buy low and sell high like @wageslave23 said

uneven_cyclist

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Re: Shift from S&P to Nasdaq...also to managed fund in 403(b)?
« Reply #9 on: October 29, 2021, 08:38:16 AM »
https://paulmerriman.com/4-fund-combo/

something like this may help you OP.  Gets you into a varied mix of assets outside of just the SP500 which is mostly what a cap weighted total market fund is and if you rebalance annually you're forced to buy low and sell high like @wageslave23 said

Thanks for this info!  It seems as well like investing in one or two (or four total in this case) etfs can be a good way to experience gains when certain sectors are hot but then not see your portfolio plummet when those sectors are suffering.

Thanks all for continuing advice.  

boarder42

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Re: Shift from S&P to Nasdaq...also to managed fund in 403(b)?
« Reply #10 on: October 29, 2021, 09:25:35 AM »
https://paulmerriman.com/4-fund-combo/

something like this may help you OP.  Gets you into a varied mix of assets outside of just the SP500 which is mostly what a cap weighted total market fund is and if you rebalance annually you're forced to buy low and sell high like @wageslave23 said

Thanks for this info!  It seems as well like investing in one or two (or four total in this case) etfs can be a good way to experience gains when certain sectors are hot but then not see your portfolio plummet when those sectors are suffering.

Thanks all for continuing advice. 

He has recommendations from. 2 to 10 whatever you want to manage. But your reason for switching to qqq bc it's been winning recently. Is a terrible reason to change an asset allocation. I hope you understand why.

yachi

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Re: Shift from S&P to Nasdaq...also to managed fund in 403(b)?
« Reply #11 on: October 29, 2021, 09:35:51 AM »
Although if you were to invest in the NASDAQ then it seems that you would also free yourself from getting anchored by some of the not-so-good positions from the S&P right?  And that, presumably, is why the NASDAQ outperforms the S&P? 

Determining which positions are the "not-so-good" ones is much more difficult than determining which positions have risen the least in price.  The difference between these two descriptions is of enormous importance in investing.  It's absolutely critical to avoiding bubbles.

Speaking of bubbles, have you looked at the periods surrounding year 2000?  I think it'll sow doubt on any assertion that "the NASDAQ outperforms the S&P"

MustacheAndaHalf

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Re: Shift from S&P to Nasdaq...also to managed fund in 403(b)?
« Reply #12 on: October 29, 2021, 11:49:09 AM »
Speaking of bubbles, have you looked at the periods surrounding year 2000?  I think it'll sow doubt on any assertion that "the NASDAQ outperforms the S&P"
You should mention the "dot-com crash" when cherry picking dates near 2000.  Including only the crash, and not the long bull run before it, isn't that accurate.

The 1990s were such a strong bull market, that if you invested right after Fed Chair Greenspan warned of "irrational exuberance" in the markets, you had a profit.  From 1997-2002 includes 3 bull years and 3 crash years, but the bull years outweighed the crash years.  Go back further than 1997, and the overall market did even better.  (QQQ was created in 1999, so there's no data for it during the 1990s)


If anything you would want to do the opposite.  Going along with what Boarder said, the goal is to buy low and sell high.  The Nasdaq has outperformed other indexes recently so the smart thing to do would be to sell it and buy underperforming indexes.  This is what rebalancing does, sells the better performers and buys the underperformers.  All of the gains in the Nasdaq are already priced in, past performance has no bearing (at least in a positive way) on future returns.  The time to switch was 10 years ago but nobody could have known that.
For the past 15 years (*), QQQ has beaten VTI by 4.6% per year... you call that "recently"?  Unlike Coke and Pepsi, Facebook doesn't have significant competition.  Similar with other big tech companies, which have near monopolies that aren't allowed elsewhere in the market.  I don't know how long that advantage will last, nor do I know when their growth will revert back towards the market's performance.

That said, I don't overweight tech.  Once I unwind my Covid-19 investments, I'm going to limit my active picks to 10% of my portfolio.  I've seen that advice elsewhere, too: use only 10-20% of your portfolio for active picks, and use the other 80-90% for passive index investing.


@uneven_cyclist - before you pick which funds will beat the market, look at this end of 2020 data from SPIVA.  You'll see more and more funds lose against the S&P 500 and S&P 1500 over time.  The past 5 years, indexing beat about 73%.  But over 20 years, indexing beat 86% overall.  If you're picking large cap stocks, the S&P 500 beat 94% of large cap funds over the past 20 years.  Indexing has a very strong historical track record.
https://www.spglobal.com/spdji/en/documents/spiva/spiva-us-year-end-2020.pdf#page=9


(*)  Portfolio Visualizer has VTSAX data back to Dec 2000.  The dot-com crash occurs, and then by 2005 both VTSAX and QQQ have recovered.  So I use 2005 as a starting date, excluding the dot-com crash and recovery, but years before the 2008 crisis.

boarder42

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Re: Shift from S&P to Nasdaq...also to managed fund in 403(b)?
« Reply #13 on: October 29, 2021, 11:56:02 AM »
Yes the last 15 years is a recency biased time frame to change investment strategy.

MustacheAndaHalf

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Re: Shift from S&P to Nasdaq...also to managed fund in 403(b)?
« Reply #14 on: October 29, 2021, 12:50:28 PM »
Yes the last 15 years is a recency biased time frame to change investment strategy.
​Have you ever asked someone "Hey, what were you doing 15 years ago?   You know, recently?"
You don't have that crazy interaction because recent does not mean 15 years ago.

As to investment strategy, I doubt 1% of people keep the same allocations to the same funds for that long.  If indexing stopped working, I would abandon it long before 15 years of underperformance.

boarder42

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Re: Shift from S&P to Nasdaq...also to managed fund in 403(b)?
« Reply #15 on: October 29, 2021, 12:56:30 PM »
Yes the last 15 years is a recency biased time frame to change investment strategy.
​Have you ever asked someone "Hey, what were you doing 15 years ago?   You know, recently?"
You don't have that crazy interaction because recent does not mean 15 years ago.

As to investment strategy, I doubt 1% of people keep the same allocations to the same funds for that long.  If indexing stopped working, I would abandon it long before 15 years of underperformance.

We're not talking about human memory of time but market cycles. And moving money to something that has outperformed an index that's already extremely over valued by modern metrics is a recipe for disaster historically. You don't want to move to outperformance you want to move to underperforming sectors and away from outperforming sectors. Esp when it's been 15 years of out performance. You know at least based on history of how markets perform. This is like investing 101

boarder42

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Re: Shift from S&P to Nasdaq...also to managed fund in 403(b)?
« Reply #16 on: October 29, 2021, 01:20:23 PM »
Be greedy when others are fearful. Be fearful when others are greedy.

yachi

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Re: Shift from S&P to Nasdaq...also to managed fund in 403(b)?
« Reply #17 on: October 29, 2021, 02:09:04 PM »
Speaking of bubbles, have you looked at the periods surrounding year 2000?  I think it'll sow doubt on any assertion that "the NASDAQ outperforms the S&P"
You should mention the "dot-com crash" when cherry picking dates near 2000.  Including only the crash, and not the long bull run before it, isn't that accurate.

The 1990s were such a strong bull market, that if you invested right after Fed Chair Greenspan warned of "irrational exuberance" in the markets, you had a profit.  From 1997-2002 includes 3 bull years and 3 crash years, but the bull years outweighed the crash years.  Go back further than 1997, and the overall market did even better.  (QQQ was created in 1999, so there's no data for it during the 1990s)


Fair enough.  I chose the date, of course, because it coincided with the peak valuation of many technology stocks - a company type the NASDAQ includes much more of than the S&P 500. 

Here's an interesting graph of the Nasdaq to S&P 500 ratio over the years: https://www.longtermtrends.net/nasdaq-vs-sp500/
It shows a similar ratio of the Nasdaq to the S&P 500 on both sides of the dot com bubble and crash.  This suggests you would have had similar results holding the Nasdaq or the S&P 500 over this entire period period.
The high ratio in between suggests you have felt like you were missing out on gains holding the S&P 500 instead of the Nasdaq around 1998 to 2000.  The worst results would have been had by someone who switched from the S&P 500 to the Nasdaq during this middle period.  The best would have been had by someone who switched from the Nasdaq to the S&P 500 instead.

The period following July 2007 shows a steadily increasing ratio suggesting the Nadaq has been the better pick since then.  Maybe the trend will continue.


MustacheAndaHalf

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Re: Shift from S&P to Nasdaq...also to managed fund in 403(b)?
« Reply #18 on: November 01, 2021, 07:50:49 AM »
Speaking of bubbles, have you looked at the periods surrounding year 2000?  I think it'll sow doubt on any assertion that "the NASDAQ outperforms the S&P"
You should mention the "dot-com crash" when cherry picking dates near 2000.  Including only the crash, and not the long bull run before it, isn't that accurate.

The 1990s were such a strong bull market, that if you invested right after Fed Chair Greenspan warned of "irrational exuberance" in the markets, you had a profit.  From 1997-2002 includes 3 bull years and 3 crash years, but the bull years outweighed the crash years.  Go back further than 1997, and the overall market did even better.  (QQQ was created in 1999, so there's no data for it during the 1990s)


Fair enough.  I chose the date, of course, because it coincided with the peak valuation of many technology stocks - a company type the NASDAQ includes much more of than the S&P 500. 

Here's an interesting graph of the Nasdaq to S&P 500 ratio over the years: https://www.longtermtrends.net/nasdaq-vs-sp500/
It shows a similar ratio of the Nasdaq to the S&P 500 on both sides of the dot com bubble and crash.  This suggests you would have had similar results holding the Nasdaq or the S&P 500 over this entire period period.
The high ratio in between suggests you have felt like you were missing out on gains holding the S&P 500 instead of the Nasdaq around 1998 to 2000.  The worst results would have been had by someone who switched from the S&P 500 to the Nasdaq during this middle period.  The best would have been had by someone who switched from the Nasdaq to the S&P 500 instead.

The period following July 2007 shows a steadily increasing ratio suggesting the Nadaq has been the better pick since then.  Maybe the trend will continue.
That's a nice graph, thanks for adding that to the discussion.  So 2.0 means Nasdaq's price was 2x higher than the S&P 500.  Going from 1.0 to 2.0 means the Nasdaq had an extra +100% of performance over the S&P 500.

One problem with bubbles is that most of the cash comes in near the end.  The infusion of cash fueled the bubble, causing the Mar 2000 peak.  Someone investing then had to wait for last year to catch the S&P 500 (Mar 2000 -> Dec 2020).  Anyone investing after Mar 1999 waited about a decade to catch the S&P 500.

It's worth noting that Nasdaq and the S&P 500 overlap.  Their top 5 stocks:
Nasdaq: Apple, Microsoft, Amazon, Facebook ("Meta"), Google ("Alphabet")
S&P 500: Apple, Microsoft, Amazon, Facebook ("Meta"), Google ("Alphabet")
During the dot-com bubble, Nasdaq's biggest holdings were almost certainly also significant to the S&P 500 index.

If you look at long term investing, I'd agree Nasdaq has beaten the S&P 500 over time.  Looking at Jan 1990 to Jan 1998 (before the bubble) shows a ratio of 1.29 growing to 1.63, which means outpacing the S&P 500 by about +26% / 8 years.  I wonder if it translates directly to performance?  About +3%/year?

After the dot-com crash, Jan 2003 began at 1.53, and has only gone upwards since then, to 3.3 now (the same as the dot-com bubble's peak!).  That means over +100% performance over ~18 years, or roughly +5%/year.  Let's see...
QQQ opened 2003 at $24.72/sh, and is $385.84/sh now, or +1461% ignoring dividends.  That's about 14-15%/year compounded over 19 years.
SPY opened 2003 at $88.85/sh, and is now $459.82/sh, or +418%.  That's about 9% compounded over 19 years.  So yeah, about a +5% advantage per year for Nasdaq for the past 19 years.

My guess is Nasdaq keeps beating the S&P 500.  While they have similar stocks, Nasdaq weights Apple at 11%, compared to 6% for the S&P 500.  Those 5 big tech companies I mentioned earlier are 45% of Nasdaq's holdings!  But about half that percentage in the S&P 500.  Unlike other companies like cell service providers, big tech companies can buy smaller rivals (Facebook buying Instagram) without a peep from the government.  That's a huge advantage that remains in place to this day, which I think helps Nasdaq keep beating the S&P 500.

yachi

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Re: Shift from S&P to Nasdaq...also to managed fund in 403(b)?
« Reply #19 on: November 01, 2021, 10:00:26 AM »
Speaking of bubbles, have you looked at the periods surrounding year 2000?  I think it'll sow doubt on any assertion that "the NASDAQ outperforms the S&P"
You should mention the "dot-com crash" when cherry picking dates near 2000.  Including only the crash, and not the long bull run before it, isn't that accurate.

The 1990s were such a strong bull market, that if you invested right after Fed Chair Greenspan warned of "irrational exuberance" in the markets, you had a profit.  From 1997-2002 includes 3 bull years and 3 crash years, but the bull years outweighed the crash years.  Go back further than 1997, and the overall market did even better.  (QQQ was created in 1999, so there's no data for it during the 1990s)


Fair enough.  I chose the date, of course, because it coincided with the peak valuation of many technology stocks - a company type the NASDAQ includes much more of than the S&P 500. 

Here's an interesting graph of the Nasdaq to S&P 500 ratio over the years: https://www.longtermtrends.net/nasdaq-vs-sp500/
It shows a similar ratio of the Nasdaq to the S&P 500 on both sides of the dot com bubble and crash.  This suggests you would have had similar results holding the Nasdaq or the S&P 500 over this entire period period.
The high ratio in between suggests you have felt like you were missing out on gains holding the S&P 500 instead of the Nasdaq around 1998 to 2000.  The worst results would have been had by someone who switched from the S&P 500 to the Nasdaq during this middle period.  The best would have been had by someone who switched from the Nasdaq to the S&P 500 instead.

The period following July 2007 shows a steadily increasing ratio suggesting the Nadaq has been the better pick since then.  Maybe the trend will continue.
That's a nice graph, thanks for adding that to the discussion.  So 2.0 means Nasdaq's price was 2x higher than the S&P 500.  Going from 1.0 to 2.0 means the Nasdaq had an extra +100% of performance over the S&P 500.

One problem with bubbles is that most of the cash comes in near the end.  The infusion of cash fueled the bubble, causing the Mar 2000 peak.  Someone investing then had to wait for last year to catch the S&P 500 (Mar 2000 -> Dec 2020).  Anyone investing after Mar 1999 waited about a decade to catch the S&P 500.

It's worth noting that Nasdaq and the S&P 500 overlap.  Their top 5 stocks:
Nasdaq: Apple, Microsoft, Amazon, Facebook ("Meta"), Google ("Alphabet")
S&P 500: Apple, Microsoft, Amazon, Facebook ("Meta"), Google ("Alphabet")
During the dot-com bubble, Nasdaq's biggest holdings were almost certainly also significant to the S&P 500 index.

If you look at long term investing, I'd agree Nasdaq has beaten the S&P 500 over time.  Looking at Jan 1990 to Jan 1998 (before the bubble) shows a ratio of 1.29 growing to 1.63, which means outpacing the S&P 500 by about +26% / 8 years.  I wonder if it translates directly to performance?  About +3%/year?

After the dot-com crash, Jan 2003 began at 1.53, and has only gone upwards since then, to 3.3 now (the same as the dot-com bubble's peak!).  That means over +100% performance over ~18 years, or roughly +5%/year.  Let's see...
QQQ opened 2003 at $24.72/sh, and is $385.84/sh now, or +1461% ignoring dividends.  That's about 14-15%/year compounded over 19 years.
SPY opened 2003 at $88.85/sh, and is now $459.82/sh, or +418%.  That's about 9% compounded over 19 years.  So yeah, about a +5% advantage per year for Nasdaq for the past 19 years.

My guess is Nasdaq keeps beating the S&P 500.  While they have similar stocks, Nasdaq weights Apple at 11%, compared to 6% for the S&P 500.  Those 5 big tech companies I mentioned earlier are 45% of Nasdaq's holdings!  But about half that percentage in the S&P 500.  Unlike other companies like cell service providers, big tech companies can buy smaller rivals (Facebook buying Instagram) without a peep from the government.  That's a huge advantage that remains in place to this day, which I think helps Nasdaq keep beating the S&P 500.

It's very tempting to snap a line and extrapolate the trend of outperformance will continue, of course like you mention, the ratio is close to the dot-com bubble's peak and that might give pause.  Because the S&P 500 can span multiple stock exchanges, while the Nadaq cannot, there is a limit even in theory on the Nasdaq's outperformance:  Eventually, all the S&P 500 companies would come from the Nasdaq stock exchange.  At that point, they would basically track eachother, the S&P 500 being a subset containing the largest nasdaq companies.

While I'm not comfortable with a lot of valuations, I don't see 2021 looking like 1999/2000.  I see excitement for individual companies (Apple, Tesla, Facebook, Amazon) more than I see excitement for entire sectors like only tech funds, made up of any company with a website.

For what it's worth, here are the top 10 companies in the S&P 500 from 1999, and 2000:
1999:
Microsoft (NASDAQ)
GE (NYSE)
Cisco (NASDAQ)
Wal-Mart (NYSE)
Exxon Mobil (NYSE)
Intel (NASDAQ)
Lucent Technologies (NYSE, interestingly)
IBM (NYSE)
Citigroup (NYSE)
America Online (NASDAQ)

2000:
GE (NYSE)
Exxon Mobil (NYSE)
Pfizer (NYSE)
Citigroup (NYSE)
Cisco (NASDAQ)
Wal-Mart (NYSE)
Microsoft (NASDAQ)
AIG (NYSE)
Merck (NYSE)
Intel (NASDAQ)

uneven_cyclist

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Re: Shift from S&P to Nasdaq...also to managed fund in 403(b)?
« Reply #20 on: February 14, 2022, 09:09:57 AM »
For the past few years, my wife and I have been investing for retirement in ITOT through our brokerage (IRAs etc)...this fund tracks the S&P 1500.  At work, we have been investing in GRMSX through 403(b) accts.  This is an index fund that tracks the S&P 500.
You mentioned the limits of your retirement accounts.  Is that the only place you save & invest for retirement?

The S&P 1500 is not a total stock market fund.  The small cap section, S&P 600, has just 600 stocks out of thousands.  ITOT ("iShares Core S&P Total U.S. Stock Market ETF") as a total stock market ETF, holding just under 3700 stocks.
https://www.ishares.com/us/products/239724/ishares-core-sp-total-us-stock-market-etf

Why does your company use GRMSX, with a 0.60% expense ratio, instead of IVV (iShares S&P 500) with a 0.03% expense ratio?  I'd favor ITOT over GRMSX.

The ONEQ ETF is actually quite reasonable.  It has an 0.21% expense ratio, compared to the 0.20% expense ratio of QQQ.  Because technology has done really well for over a decade, ETFs with more tech stocks have outperformed the market.

That is part of the story for Fidelity Advisor Growth Opportunities Fund (FAGAX), but they only allocate 38% tech right now, and even beat QQQ and VGT (Vanguard Info Tech ETF).  It would be better if that fund wasn't quite so large, at over $20 billion in assets.  As funds grow really large, they get more assets than they can invest well, and returns suffer.  Expect that to happen at some point.

Many, many years ago I invested some money in "Fidelity Select Electronics" which had a 3 year return of about +250%.  Soon after I bought, the fund dropped 20%... and then stayed there.  Too many people, like myself, had chased returns and given the fund too much cash to invest.  If you decide to chase returns, it's better to keep that limited to 10% of your portfolio.

Update on all of this -- I have been purchasing some ONEQ in my taxable accts. since posting about this originally and also I reallocated a fairly good sized chunk of my 403(b) fund to FAGAX.  Unfortunately, *right* after I did that, FAGAX went off the cliff and lost 28% of its value.  ONEQ and ITOT also lost value as well but not nearly as much.

My inclination is to eventually get out of FAGAX and return to the S&P 500 Index Fund that my employer offers.  In the meantime though: would it be wiser for me to leave the $$ that I currently have invested in FAGAX *there* and give it an opportunity to bounce back?  OR would it be smarter at this point to just take it out ("sell low") and get out while I'm behind...?

I would be grateful for any thoughts/advice.

Thanks all!

DaTrill

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Re: Shift from S&P to Nasdaq...also to managed fund in 403(b)?
« Reply #21 on: February 15, 2022, 01:07:05 PM »
Minimize fees in employment accounts, boring S&P index and do portfolio balancing in other accounts.  Paying over 1% in any fund is unlikely to result in any long-term positive performance.  In addition, most funds contain the same top 10 companies regardless of name due to the large market cap of AAPL, MSFT, AMZN, GOOG, FB, TSLA. 

Chasing fund performance is never a good strategy.   

ChpBstrd

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Re: Shift from S&P to Nasdaq...also to managed fund in 403(b)?
« Reply #22 on: February 16, 2022, 09:21:22 AM »
@uneven_cyclist is the only reason to change your AA the fact that the Nasdaq has had a minor correction in the past 1.5 months and the S&P500 has done a few percent better?

Will you go back to the Nasdaq after a period of it outperforming the S&P? Will you buy funds in the best performing sectors from each previous quarter from now on?

I'm asking you to think through the consequences of such algorithms because, as I'm sure you can see, it could lead to a pattern of buying high and selling low.

MustacheAndaHalf

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Re: Shift from S&P to Nasdaq...also to managed fund in 403(b)?
« Reply #23 on: February 17, 2022, 09:42:37 AM »
Note when I change my approach, I don't update everyone on it.  At the time of my earlier post, I held call options that gave me 2x the Nasdaq return.  At the end of 2021, the market looked irrationally optimistic given the uncertainty ahead (Fed moves, Covid-19, supply chain driven inflation).  So I sold off before the 2022 drops in Nasdaq and S&P 500 (had some very profitable calls there, too).

For those who think the Nasdaq is not diversified, the top companies there are a complete overlap with the S&P 500:  Apple, Microsoft, Amazon, Nvidia, Tesla, Alphabet (Google), Meta (Facebook), etc.  The top stocks in both - where they are most concentrated - are the same.  That list of stocks?  That's half of QQQ:
https://etfdb.com/etf/QQQ/#holdings

uneven_cyclist

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Re: Shift from S&P to Nasdaq...also to managed fund in 403(b)?
« Reply #24 on: February 18, 2022, 02:26:34 PM »
@uneven_cyclist is the only reason to change your AA the fact that the Nasdaq has had a minor correction in the past 1.5 months and the S&P500 has done a few percent better?

Will you go back to the Nasdaq after a period of it outperforming the S&P? Will you buy funds in the best performing sectors from each previous quarter from now on?

I'm asking you to think through the consequences of such algorithms because, as I'm sure you can see, it could lead to a pattern of buying high and selling low.

The position I am concerned about is not exactly the NASDAQ, but rather FAGAX, which shares many of the largest holdings but is different in the way that MustacheAndaHalf was describing earlier in this thread:

"That is part of the story for Fidelity Advisor Growth Opportunities Fund (FAGAX), but they only allocate 38% tech right now, and even beat QQQ and VGT (Vanguard Info Tech ETF).  It would be better if that fund wasn't quite so large, at over $20 billion in assets.  As funds grow really large, they get more assets than they can invest well, and returns suffer.  Expect that to happen at some point.

Many, many years ago I invested some money in "Fidelity Select Electronics" which had a 3 year return of about +250%.  Soon after I bought, the fund dropped 20%... and then stayed there.  Too many people, like myself, had chased returns and given the fund too much cash to invest.  If you decide to chase returns, it's better to keep that limited to 10% of your portfolio."

In short: I am concerned that I might now be in a similar situation with FAGAX and that it might not recover the 28% that it just lost, in which case it would benefit me to get out of the position now despite my loss and go back to the fund that I was previously in (GRMSX, which is an S&P index fund).

@ChpBstrd I appreciate completely what you are saying about buying high and selling low, and I too am eager to avoid making a habit of this.  Although I also recognize that at times it might be best to get out of a bad investment before it gets worse and I am trying to figure out if this is one of those times?

My goal is to actually end up in a place where I can stay invested in one or two positions for the long haul.  85% of my portfolio is already configured pretty much the way I would want it to be, split between S&P and NASDAQ ETFs, but I *would* be grateful for thoughts about the wisdom of selling my FAGAX shares now vs. waiting/hoping for the fund to recover and *then* selling.  I just don't know if I can reasonably expect the fund to recover or if I can reasonably expect my $$ to grow as fast in FAGAX as it might in GRMSX?

[Completely] Needless to say, I am not an expert when it comes to evaluating funds/stocks/investments and so that is why I thought I would reach out to the forum. 

Thanks all for your thoughts and advice!
« Last Edit: February 18, 2022, 02:32:41 PM by uneven_cyclist »

boarder42

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Re: Shift from S&P to Nasdaq...also to managed fund in 403(b)?
« Reply #25 on: February 18, 2022, 02:42:42 PM »
So stop evaluating things and just pick a simple long term strategy you trust. You literally could write the book on what not to do when you select investment strategies with this thread.

It's incredible how bad you've been using recency bias your whole life.

You want to pick a market sector to our perform the next 20 years you don't pick the one that did it the previous 10.  Or 5 or whatever terrible criteria you're using to change your AA

ChpBstrd

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Re: Shift from S&P to Nasdaq...also to managed fund in 403(b)?
« Reply #26 on: February 18, 2022, 03:27:29 PM »
Tech/growth stocks with high PE ratios are hurt by rising interest rates because as the discount rate (i.e. rate you could have earned on treasuries) rises in a present value calculation, those distant future earnings which prop up the value of tech/growth get discounted more and more. The current mini-correction could turn into something more if interest rate hikes exceed today's expectations.

Recall that a series of rate hikes totaling 1.75% across the prior year set off the end of the tech bubble in 2000. Based on recent quotes from Fed officials, it appears they have a theory about a "normal" level of interest rates in the 2.25%+/- range which will support their 2% inflation target. E.g:

Quote
“With today’s strong economy and inflation that is well above our 2% longer-
run goal, it is time to start the process of steadily moving the target range [for short-term interest rates ] back to more normal levels” John Williams said in a virtual speech Friday at New Jersey City University.
Source: https://www.marketwatch.com/story/feds-williams-backs-march-rate-hike-and-asset-sales-later-this-year-11645200439?mod=search_headline

The Fed's "normal" appears to be around 2.25-2.5% where they plateaued in 2019 (which itself was high enough to cause a yield curve inversion and a likely recession in 2020 had COVID not come along). In their minds, a "neutral" interest rate would roughly match the long term economic growth rate.

So today we're looking at a rate-hiking series that will add over 2% to the Fed Funds Rate, which is more than the June'99-to-July'00 hikes which popped the tech bubble. This comes at a time when housing, bonds, crypto, and to some extent stocks are priced for much lower rates, and each of these bubbles individually pose a risk of setting off a liquidity crisis.

Williams also expects inflation to drop to 3% by year-end and to the extent some market participants find that implausible, it kind of reinforces the narrative of a fed that is too dovish, too slow to react, and which lets inflation get out of hand. That which would eventually lead people to expect more and faster hikes than we'd otherwise have seen.

This reasoning explains the rush out of growth stocks and into value over the last couple of months (wish I could have written this obvious hindsight note to myself in December, lol). It's also a good reason to dial back on the growth stocks which still dominate indexes, because there may be opportunities to pick them up cheaper in the future. I don't see the current correction as another random 2021-style dip that will definitely go back up in 2 months - I see it as driven by a shift in the discount rate, which is a factor that could worsen. Of course, Facebook's implosion didn't help either. Now their PE is suddenly 15.

Then again, the experience of the 2013 taper tantrum reminds us that not all plans come to fruition. I would be reluctant to sit out of anything, but if you're more comfortable in value stocks or energy I wouldn't blame you. Go ahead and make the change if you need to.

JoePublic3.14

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Re: Shift from S&P to Nasdaq...also to managed fund in 403(b)?
« Reply #27 on: February 18, 2022, 06:18:36 PM »
OP, please read boarder42 posts over and over, over the course of a week. Do not feel bad about falling into the chasing performance trap. It’s somewhat a natural emotional response. But it will destroy so much potential growth.

Good luck!

MustacheAndaHalf

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Re: Shift from S&P to Nasdaq...also to managed fund in 403(b)?
« Reply #28 on: February 19, 2022, 02:36:46 AM »
If anything you would want to do the opposite.  Going along with what Boarder said, the goal is to buy low and sell high.  The Nasdaq has outperformed other indexes recently so the smart thing to do would be to sell it and buy underperforming indexes.
You're claiming Nasdaq and S&P 500 will revert to the mean, but that hasn't been true of big tech stocks for many years.  For example, Amazon's 20 year return is +19,241% versus the stock market's +515% return.  When will AMZN revert to the mean?

You mentioned recent outperformance of Nasdaq, but it's beaten the S&P 500 over 3y, 5y, 10y and 15 years.  Tech stocks beating the market isn't just recent, and might not revert to the mean.


uneven_cyclist

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Re: Shift from S&P to Nasdaq...also to managed fund in 403(b)?
« Reply #29 on: February 21, 2022, 02:59:50 AM »
Tech/growth stocks with high PE ratios are hurt by rising interest rates because as the discount rate (i.e. rate you could have earned on treasuries) rises in a present value calculation, those distant future earnings which prop up the value of tech/growth get discounted more and more. The current mini-correction could turn into something more if interest rate hikes exceed today's expectations.

Recall that a series of rate hikes totaling 1.75% across the prior year set off the end of the tech bubble in 2000. Based on recent quotes from Fed officials, it appears they have a theory about a "normal" level of interest rates in the 2.25%+/- range which will support their 2% inflation target. E.g:

Quote
“With today’s strong economy and inflation that is well above our 2% longer-
run goal, it is time to start the process of steadily moving the target range [for short-term interest rates ] back to more normal levels” John Williams said in a virtual speech Friday at New Jersey City University.
Source: https://www.marketwatch.com/story/feds-williams-backs-march-rate-hike-and-asset-sales-later-this-year-11645200439?mod=search_headline

The Fed's "normal" appears to be around 2.25-2.5% where they plateaued in 2019 (which itself was high enough to cause a yield curve inversion and a likely recession in 2020 had COVID not come along). In their minds, a "neutral" interest rate would roughly match the long term economic growth rate.

So today we're looking at a rate-hiking series that will add over 2% to the Fed Funds Rate, which is more than the June'99-to-July'00 hikes which popped the tech bubble. This comes at a time when housing, bonds, crypto, and to some extent stocks are priced for much lower rates, and each of these bubbles individually pose a risk of setting off a liquidity crisis.

Williams also expects inflation to drop to 3% by year-end and to the extent some market participants find that implausible, it kind of reinforces the narrative of a fed that is too dovish, too slow to react, and which lets inflation get out of hand. That which would eventually lead people to expect more and faster hikes than we'd otherwise have seen.

This reasoning explains the rush out of growth stocks and into value over the last couple of months (wish I could have written this obvious hindsight note to myself in December, lol). It's also a good reason to dial back on the growth stocks which still dominate indexes, because there may be opportunities to pick them up cheaper in the future. I don't see the current correction as another random 2021-style dip that will definitely go back up in 2 months - I see it as driven by a shift in the discount rate, which is a factor that could worsen. Of course, Facebook's implosion didn't help either. Now their PE is suddenly 15.

Then again, the experience of the 2013 taper tantrum reminds us that not all plans come to fruition. I would be reluctant to sit out of anything, but if you're more comfortable in value stocks or energy I wouldn't blame you. Go ahead and make the change if you need to.

Thanks for this info @ChpBstrd I did not know about the shift toward value stocks.  I made the move back to the S&P 500 position.  In comparing the losses between the two positions since November, I lost several thousand dollars more as a result of the original change to FAGAX and will just hope at this point that my $$ recovers at a similar rate in the S&P position to however it might have performed in FAGAX.  Thanks again for providing this info.

@boarder42 I hear you and others in terms of your calls to just follow a "simple strategy."  I also understand the frustration you might feel when encountering someone who is either making mistakes or doing things differently -- e.g. "you could literally write the book on what not to do..."  With that in mind, I should say that I am certainly not trying to write any books on investment strategy.  Far from it -- I am here trying to learn from more experienced investors, and I am hoping that by sharing my experience with that process that perhaps others might be able to benefit as well if they read about it and so on.  A simple, efficient, and profitable strategy will eventually emerge.  However, as we all know, it is not possible to learn a new skill without making a few mistakes along the way.

Thanks again all of you for your time and help with your posts and replies.


boarder42

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Re: Shift from S&P to Nasdaq...also to managed fund in 403(b)?
« Reply #30 on: February 21, 2022, 03:21:15 PM »
Tech/growth stocks with high PE ratios are hurt by rising interest rates because as the discount rate (i.e. rate you could have earned on treasuries) rises in a present value calculation, those distant future earnings which prop up the value of tech/growth get discounted more and more. The current mini-correction could turn into something more if interest rate hikes exceed today's expectations.

Recall that a series of rate hikes totaling 1.75% across the prior year set off the end of the tech bubble in 2000. Based on recent quotes from Fed officials, it appears they have a theory about a "normal" level of interest rates in the 2.25%+/- range which will support their 2% inflation target. E.g:

Quote
“With today’s strong economy and inflation that is well above our 2% longer-
run goal, it is time to start the process of steadily moving the target range [for short-term interest rates ] back to more normal levels” John Williams said in a virtual speech Friday at New Jersey City University.
Source: https://www.marketwatch.com/story/feds-williams-backs-march-rate-hike-and-asset-sales-later-this-year-11645200439?mod=search_headline

The Fed's "normal" appears to be around 2.25-2.5% where they plateaued in 2019 (which itself was high enough to cause a yield curve inversion and a likely recession in 2020 had COVID not come along). In their minds, a "neutral" interest rate would roughly match the long term economic growth rate.

So today we're looking at a rate-hiking series that will add over 2% to the Fed Funds Rate, which is more than the June'99-to-July'00 hikes which popped the tech bubble. This comes at a time when housing, bonds, crypto, and to some extent stocks are priced for much lower rates, and each of these bubbles individually pose a risk of setting off a liquidity crisis.

Williams also expects inflation to drop to 3% by year-end and to the extent some market participants find that implausible, it kind of reinforces the narrative of a fed that is too dovish, too slow to react, and which lets inflation get out of hand. That which would eventually lead people to expect more and faster hikes than we'd otherwise have seen.

This reasoning explains the rush out of growth stocks and into value over the last couple of months (wish I could have written this obvious hindsight note to myself in December, lol). It's also a good reason to dial back on the growth stocks which still dominate indexes, because there may be opportunities to pick them up cheaper in the future. I don't see the current correction as another random 2021-style dip that will definitely go back up in 2 months - I see it as driven by a shift in the discount rate, which is a factor that could worsen. Of course, Facebook's implosion didn't help either. Now their PE is suddenly 15.

Then again, the experience of the 2013 taper tantrum reminds us that not all plans come to fruition. I would be reluctant to sit out of anything, but if you're more comfortable in value stocks or energy I wouldn't blame you. Go ahead and make the change if you need to.

Thanks for this info @ChpBstrd I did not know about the shift toward value stocks.  I made the move back to the S&P 500 position.  In comparing the losses between the two positions since November, I lost several thousand dollars more as a result of the original change to FAGAX and will just hope at this point that my $$ recovers at a similar rate in the S&P position to however it might have performed in FAGAX.  Thanks again for providing this info.

@boarder42 I hear you and others in terms of your calls to just follow a "simple strategy."  I also understand the frustration you might feel when encountering someone who is either making mistakes or doing things differently -- e.g. "you could literally write the book on what not to do..."  With that in mind, I should say that I am certainly not trying to write any books on investment strategy.  Far from it -- I am here trying to learn from more experienced investors, and I am hoping that by sharing my experience with that process that perhaps others might be able to benefit as well if they read about it and so on.  A simple, efficient, and profitable strategy will eventually emerge.  However, as we all know, it is not possible to learn a new skill without making a few mistakes along the way.

Thanks again all of you for your time and help with your posts and replies.

I don't even understand WTF you're saying. Are you just a troll?  A simple investment strategy is just that simple youre posting some of the dumbest data and reasons to shift asset allocation I've ever seen. 

Wake the fuck up.

JoePublic3.14

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Re: Shift from S&P to Nasdaq...also to managed fund in 403(b)?
« Reply #31 on: February 21, 2022, 05:24:28 PM »
I gotta side with boarder42 here. You say 'we' are correct, but that you don’t care???? So strange.

You seem to not care about data. So, I’ll say good luck and good bye.