Author Topic: VIMAX to VTSAX? or not? What would you do  (Read 12558 times)

FerrumB5

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VIMAX to VTSAX? or not? What would you do
« on: January 14, 2016, 10:01:11 PM »
Hi Folks,

here's my situation. As you might have found out already, I bought 30k VIMAX in mid-November and added $100 to it on Dec 1st. Why VIMAX? It seemed to perform better than VTSAX in long run. Recently I added 10k VTSAX to same account. I'm adding $100 every month to VTSAX now
Now I'm looking at VIMAX perf, and see that it is worse than VTSAX.
All in taxable
What would a Mustachian do?

1. Exchange VIMAX to VTSAX now and bite < 1 year higher tax on capital gains (it will be for a loss given bad 2016 start, btw)
2. Exchange VIMAX to VTSAX 1 year after last VIMAX contribution
3. Leave it as is, expect VIMAX to perform better than VTSAX as in past X year and not overanalyze it

I'm equally torn between 3 options. The cap gains if any will be not significant for tax purposes in 2016 so 1) is not disfavored.

NB1: I'm not trying to be too involved in this and def not timing the market, just realizing that VTSAX is "the" fund at MMM for a reason (I bet, VIMAX was analyzed before, wasn't it?)
NB2: tax implications will be small on that amount NOW but can grow in 10 month when my VIMAX reaches 1 year. Who knows.
NB3: No, I cannot max my 401k yet due to expected expenses next year, and taxable account gives me flexibility to get money out of market (yes, I do realize that investments can lose value)

Facepunches welcome if justified :) Thanks

Indexer

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Re: VIMAX to VTSAX? or not? What would you do
« Reply #1 on: January 14, 2016, 10:14:11 PM »
Well for starters I wouldn't sell one just to go into the other especially based on short term results. The two funds also have some overlap. Everything in VIMAX is in VTSAX. Put another way, VIMAX is actually part of VTSAX. Why pay taxes on capital gains just so you can end up owning the same thing?

VTSAX = large, mid, and small cap stocks.
VIMAX = just mid cap.
VEXAX = small and mid cap. (This is the total market minus the companies in the SP500.)
VSMAX = just small cap.

VIMAX is more aggressive & volatile since it is smaller companies, and you could say the same for VSMAX and VEXAX.

Over the long term it does have the possibility of outperforming, but that is only because you are taking on more risk.

Now if you do want to be diversified and increase the risk/return profile you could always keep both. End result is a portfolio containing all US stocks(VTSAX), but tilted heavier towards smaller more volatile companies.
« Last Edit: January 14, 2016, 10:17:41 PM by Indexer »

BTH7117

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Re: VIMAX to VTSAX? or not? What would you do
« Reply #2 on: January 15, 2016, 09:28:43 AM »
Of all financial "mistakes" you could have made, this may be the most harmless, and I wouldn't even call it a mistake.  VIMAX is a perfectly good fund to own.  Instant diversification, expense ratio of 0.09%.  There are people out there trying to pick stocks, paying outrageous fees and buying whatever God-awful financial product is cooked up in the towers of the Wall Street.  You are already in the elite by 1) saving; and 2) saving in ultra-low cost funds.

If you want to increase your VTSAX holdings, just keep putting additional contributions into VTSAX.  Or if you're into tax loss harvesting, slowly get out that way.  But if I were you, I would keep VIMAX and slowly add to VTSAX.  The difference in volatility shouldn't be outrageous.

Buy and hold.  Hold and buy.  Especially in a taxable account.

Jack

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Re: VIMAX to VTSAX? or not? What would you do
« Reply #3 on: January 15, 2016, 10:10:35 AM »
NB1: I'm not trying to be too involved in this and def not timing the market

Yes, you totally are.

When buying a fund, the questions you need to be asking yourself are 1: "is this fund in the asset class I want?" (i.e., the asset class my investment policy statement says I should be buying -- note that the IPS has nothing whatsoever to do with particular funds), and 2: "is this fund the best available for its asset class?" (i.e., does it have lower expense ratios and maybe better diversification than other funds in the same class).

"Does arbitrary fund A have better trailing returns than arbitrary fund B?" is not the right question, and should be irrelevant.

You do not buy VIMAX instead of VTSAX because you want higher return; you buy it because you want to own mid-cap US stocks instead of the total market. The only reason to swap out VIMAX for VTSAX is if you decide you want to own large-cap and small-cap stocks too (but you could also accomplish that by keeping VIMAX and just adding VFIAX and VSMAX).

If you really want to talk about returns, the question you should be asking yourself is "do I expect mid-cap stocks to outperform large-cap and small-cap over the long term?" (meaning the entire interval between now and your death, not one year!). In that case, you might consider tilting your portfolio towards whatever asset class you think will outperform. But again, we're talking about asset classes in the abstract, and performance based on the fundamental characteristics of that asset class, and totally ignoring the trailing returns of any particular fund because it's irrelevant. If you think something will outperform you need to be able to give a good reason why, and a line on a chart does not and cannot answer that question.

FerrumB5

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Re: VIMAX to VTSAX? or not? What would you do
« Reply #4 on: January 15, 2016, 10:28:41 AM »
Thanks to all. Noted. Keeping it as is as I did want mid cap more than large in the first place (why? not sure I have a good answer).

AZryan

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Re: VIMAX to VTSAX? or not? What would you do
« Reply #5 on: January 15, 2016, 01:56:17 PM »
I've been 100% stocks for 20+ years and kept getting heavier into mid-caps (specifically VIMAX).

VIMAX's performance vs. the Total Market (or 500 Index) has been slightly worse in this very recent, very short timeframe, but it's done much better in both recent years and the long run.

For a slightly higher volatility you get ~1.33% higher return over time. That's worth it, IMO.

Note too that it held flat while the market crashed in the 2000 dot-com bubble. It fell harder than the total market in the '08 crash, but starting from a higher height it only lost the same as if I'd had the Total Market or 500 Index in the first place.
And from there it recovered just as fast as the rest of the market, putting me much farther ahead by now (so I do expect a bigger drop if this is a crash now since that seems like the pattern).

It correlates ~93-95% with the total market, so I think it's a pretty reasonable replacement in an asset allocation.
Plus, it's really more of a Mid AND Large cap fund of big names everyone knows, whereas the total market and 500 Index are dominated by the Mega caps. That actually seems riskier to me.

I just don't think Mega caps can grow as much or as easily as Mid caps can -especially when we're talking about tech like Apple and Microsoft vs. the dominance of Big Oil for the past 100+ years.

I'm not sure why Jack said, "-You do not buy VIMAX instead of VTSAX because you want higher returns-"?

I did exactly that... and I got it for the past 20 years. And it back-tests for at least the last 40+ with similar results.

Jack

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Re: VIMAX to VTSAX? or not? What would you do
« Reply #6 on: January 15, 2016, 02:37:50 PM »
I'm not sure why Jack said, "-You do not buy VIMAX instead of VTSAX because you want higher returns-"?

I did exactly that...

No you didn't; you bought mid-caps instead of total-market because you wanted higher returns, and believed mid-caps would outperform based on specific, concrete reasons which you enumerated above (specifically, in the two paragraphs immediately preceding the part I quoted). VIMAX was only incidental to that -- you must have picked it because it was the best mid-cap index fund (i.e., comparing it against things like FSCLX, not VTSAX) after you'd already decided mid-cap was the right asset class for you.

I mean, I guess you could have picked VIMAX blindly based on its 1-year, 5-year, or whatever-interval past performance without even caring what kind of fund you were buying and then justified it after-the-fact, but is that really what you did?

The point I'm trying to make is that a long-term investor should choose an asset class based on fundamental analysis, not choose a specific fund based on technical analysis. (If you want to do the latter, you might as well read tea leaves and tarot cards too.)

FerrumB5

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Re: VIMAX to VTSAX? or not? What would you do
« Reply #7 on: January 15, 2016, 02:49:15 PM »
What are you investing into, Jack?

Indexer

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Re: VIMAX to VTSAX? or not? What would you do
« Reply #8 on: January 15, 2016, 02:57:43 PM »
Thanks to all. Noted. Keeping it as is as I did want mid cap more than large in the first place (why? not sure I have a good answer).

Owning VTSAX is owning the entire stock market in its market weighted allocations between large, mid, and small.

Adding VIMAX or VEXAX is adding more smaller less established companies. You are increasing risk. There is the potential for higher returns, but you are essentially just adding more risk. If you are already 100% stock and you have the tolerance for more risk then tilting towards small/mid caps is one way to take on more risk, and it is a whole lot safer than going on margin or getting into options.

Jack

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Re: VIMAX to VTSAX? or not? What would you do
« Reply #9 on: January 15, 2016, 03:11:44 PM »
What are you investing into, Jack?

US total market and, very recently, international total market. (Incidentally implemented by VTSAX and VTIAX, and approximated in my 401k by an S&P 500 index fund, which is the closest I can get.) I plan to reduce my US tilt over time, and eventually tilt towards emerging markets -- eventual allocation will probably be something like 70% US / 25 % ex-US / 5% EM. I will also slowly increase my bond allocation from 0% to maybe 10-20% between the time when I pay off my non-mortgage debt and FIRE.

(My current allocation doesn't necessarily match my eventual desired allocation because of Admiral share-class fund minimums... but the corollary of that is that my portfolio is still small enough that it doesn't matter all that much. For example, my traditional IRA hit $20K late last year and I split the 100% VTSAX in it into 50% VTSAX and 50% VTIAX on January 4. Maybe I should swap out my funds for the ETF equivalents, but I'm too lazy...)

AZryan

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Re: VIMAX to VTSAX? or not? What would you do
« Reply #10 on: January 16, 2016, 07:48:28 PM »
I bought VIMAX because I wanted higher returns than VTSAX.

Quote from: Jack
No you didn't; -...plus stuff that makes sense yet doesn't prove azryan wrong at all -

Yes..... I did. And got higher returns -as was likely, though admittedly not guaranteed or promised. I don't get your argument against this simple and true statement that you can't seem to accept.

Quote from: Jack
The point I'm trying to make is- inserts terms and Wikipedia links rather than make actual point-

Quote from: Indexer
Adding VIMAX or VEXAX is adding more smaller less established companies.- -but you are essentially just adding more risk-

No, not really. Technically, it's not really smaller or less established companies. It's just "no-Megas". And that's demonstrably not riskier based on decades of historic results.

To illustrate my point on risk... imagine owning 100% Total Bond Market rather than 100% Total Stock (or a mix of both). By the metric you are using to claim 'risk', bonds are much lower risk. BUT in the real world you're actually at far more risk of running out of money, or not meeting your future goals if you're in 100% Bonds.
And in that same way, VIMAX isn't riskier than VTSAX (or VFIAX). I'd argue it's less risky.

As I already noted, VIMAX is actually both LARGE and Mid-cap companies. Look it up yourself and you'll see that aside from the very top MEGA-caps in the 500 index, the market cap for the rest of the 500 and Mid Cap Index is very similar all the way down to the smallest companies in both funds. (Obviously the Total Market has all the small-caps too, but it's a very small part of the whole fund)

So VIMAX isn't really a 'mid-cap' Index so much as a 'No-Mega, Large-cap Index'.

And with no overlap, I really like (and personally use) the concept of mixing the 500 Index and Mid Index to form a ~900 company fund of Megas, Large and Mids that de-emphasizes Megas, while boosting Large and Mid with nearly ALL well-established, well-known brands top to bottom.

Personally, I think a Mega cap like Apple with 7 billion dollars and a terribly narrow range of products with plenty of fantastic, powerful competitors is a riskier company to have so much $ in, rather than spreading that same cash over a broader range of other big brands everybody also knows and loves.

IMO, this isn't the old days when companies can sit on top for decades -especially with tech leading the future.

Indexer

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Re: VIMAX to VTSAX? or not? What would you do
« Reply #11 on: January 17, 2016, 06:44:48 AM »
Quote from: Indexer
Adding VIMAX or VEXAX is adding more smaller less established companies.- -but you are essentially just adding more risk-

No, not really. Technically, it's not really smaller or less established companies. It's just "no-Megas". And that's demonstrably not riskier based on decades of historic results.

2008
VTSAX = -36.99%
VEXAX = -38.63%
VIMAX = -41.87%

Yes, technically, they are smaller and less established companies. That is exactly what they are are. Breaking it down between what you feel is mega VS large VS mid-cap doesn't change the fact that VIMAX is ignoring the largest most established companies that are found in VTSAX. So technically VIMAX is adding more to smaller and less established companies than VTSAX is. I'm not sure what history you are referring to, but in 2008 small/mid caps did take a bigger hit than the general market. That has been true in most crisis events. Your big established companies, your blue chips, tend to fair better than smaller less established companies in a crisis.

I'm not faulting what you are doing. I'm just pointing out from a strategy point of view what you are doing. When you tilt small/mid cap you are increasing risk for the potential of higher returns. If you want higher potential returns you normally have to take on more risk. VIMAX is higher risk than VTSAX. Your definition of mega/large/mid/small doesn't change that fact. I'm not doing it right now, but in the past I have added VEXAX to VTSAX in order to tilt small/mid cap. I was increasing risk to increase potential returns, and if the market drops some more I will probably do it again. When values are heavily depressed I feel small/mid caps have more potential for growth than large caps long term, but when values are really high(like they have been since 2013) I don't feel the need to take on that extra degree of risk.
« Last Edit: January 17, 2016, 06:47:20 AM by Indexer »

AZryan

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Re: VIMAX to VTSAX? or not? What would you do
« Reply #12 on: January 17, 2016, 10:24:19 AM »
Dammit Indexer, I thought you'd do this, but I really hoped you wouldn't.

First, VEXAX is irrelevant. I never mentioned it, so it just pointlessly muddies any argument we have.

Two, you post the 2008 drop that I already mentioned MYSELF as a larger drop for VIMAX than VTSAX or VFIAX. Of course you neglect to mention that had you started with all of those in equal amounts in 2007 (or whenever earlier) and rode out the '08-'09 crash until you got all your money back in VTSAX/VFIAX... you'd have MORE money than either in VIMAX. Took like ~1.5 years.

The 2000 tech bubble had the mid-cap hopping over a huge crash that hit the larger, but much more poorly established tech Mega-caps. The more you cherry pick like that, the more you're proven wrong on which is riskier. But I made that point already.

You said, "I'm not sure what history you are referring to-"

Odd... I clearly wrote the past 40+ years resulting in much higher returns. Was that really not clear enough? But now I just showed again how your point fails even when you cherry pick crashes. In fact, you'd only be right if you're talking about some sad sucker who invested all their cash in VIMAX exactly in 2007, then sold it all at the bottom of the 2008 crash. That's an insane argument.

Any other investing pattern in the past 40+ years would put VIMAX above VTSAX/VFIAX, or at worst pretty much equal.

You wrote, "That has been true in most crisis events.", but the only two major crisis events in the past 40+ years have been the tech bubble and the 2008 crash. And I already mentioned both and noted the fact that VIMAX didn't crash in 2000 and recovered faster/better from the '08 crash than the total market. What examples do you have to prove "-true in most crisis events-"??

Just be a Buy and Hold investor (like basically everyone here already is) and VIMAX back-tests as the less risky winner, and fundamentally looks the same going forward.

Third -you said, "Yes, technically, they are smaller and less established companies."

But 'less established' is not a 'technical' term. And I really doubt you can prove Electronic Arts, ConAgra Foods, Dr.Pepper, Clorox, Tyson Foods, etc. are 'less established' than Amazon, Apple or Facebook.

Smaller market cap, yes. But I already addressed that by calling VIMAX a Large/Mid-cap fund.

Fourth... no, I'm not going by 'my feelings' of what are Mega-caps, Large and Mids. There are actual various Index definitions of these terms already in existence. I assume you already know that, which makes your argument disingenuous.
Investors typically just say 'Large, Mid, and Small', but my point was that the market is really Megas, Large, Mid, Small, Micro, etc. and VIMAX companies are really very fucking large, well established, well known companies with market caps as large as most of the 500 Index. It was really a very clear point and 100% accurate. Go to Vanguard and look at it yourself.

You keep saying 'risk', but I think you define it poorly. I addressed this in my earlier post showing how 100% 'low risk' Bonds would actually be at a very 'HIGH risk' of running out in retirement using the 4% rule. But 100% Stocks would not be nearly as risky. Yet you clearly define the latter as the FAR higher risk investment. Do you not see the flaw in that view?

At the very least, you're simply ignoring that there are other, far more practical versions of the concept.

You wrote, "When values are heavily depressed I feel small/mid caps have more potential for growth than large caps long term, but when values are really high(like they have been since 2013) I don't feel the need to take on that extra degree of risk."

You write that you 'feel' potential after criticizing me for 'feeling' that VIMAX is made of lots of Large, well-established companies -something that's essentially a plain fact?

What you've just described is a mash-up of market timing nonsense mixed with the admission of my point that Mid-caps grow better long term (based on historical fact). And your 'feeling' follows exactly what I've been describing as the known pattern of slightly harder downturns, but overall better long-term results.

acanthurus

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Re: VIMAX to VTSAX? or not? What would you do
« Reply #13 on: January 17, 2016, 10:45:31 AM »
Am I missing something here? You've got a loss on VIMAX that you could harvest, and get into a total market index like VTSAX?

This is a no-brainer. No lengthy discussion required. Sell VIMAX. Use the loss to offset capital gains elsewhere or to offset regular income tax. Buy VTSAX. Done.

If you really want VIMAX for whatever reason, buy back in later. It's your money, do whatever you want. But harvest the loss.

MustacheAndaHalf

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Re: VIMAX to VTSAX? or not? What would you do
« Reply #14 on: January 17, 2016, 12:02:20 PM »
I agree with acanthurus, with one caveat.  Make sure you've held VIMAX 61 days.  The dividends you got in December are retroactively either qualified or non-qualified depending on if you've met that IRS holding period.

Sell at a ~$3500 loss now and switch to Vanguard Total Stock Market.  Then later this year, the first $3500 of capital gains will be canceled out by the sale you made this month.  But make sure you hold this 61 days before the sale, to help the qualified dividends from December.

By the way, that's why companies can't mail out capital gains distributions until February.  You could buy a fund just before the dividend, and only 61 days later does anyone know if that dividend was qualified.

acanthurus

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Re: VIMAX to VTSAX? or not? What would you do
« Reply #15 on: January 17, 2016, 01:34:53 PM »
Good catch, MustacheAndAHalf. I'm generally holding things for years, and I only TLH into stuff I'm happy holding long term, so I don't normally think about the wash sale rules.

Indexer

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Re: VIMAX to VTSAX? or not? What would you do
« Reply #16 on: January 17, 2016, 01:47:13 PM »
@AZryan:  One more time. I'm not saying what you are doing is wrong. I'm just pointing out that VIMAX is higher risk than VTSAX in the short term.  I'm defining risk in terms of investment risk which is what most people are talking about when they use the word risk in this context. I've never had to explain it before...  Risk = volatility, downside potential, the possibility of total loss, etc. You are correct that the risk of running out of money because of withdrawals outpacing growth is another issue. We agree there, but when people talk about investing risk for a specific investment they are normally referring to volatility/downside potential. The risk of running out of money is more related to your overall goals, income VS expenses, and the total portfolio.  It is not something normally applied to a single investment within a portfolio.

Even according to Vanguard VIMAX is higher risk(they rate is a 5 on a scale of 1-5). Yes VIMAX has better long term returns.... because it is higher risk. VTSAX is a whole lot more diversified(3757 companies VS 365), lower cost(0.05 VS 0.09), has less volatility, and has larger companies in it than VIMAX. VIMAX is higher risk no matter what measurement you use. I don't know why that requires so much explanation. The 10 year standard deviation for VIMAX is 17.69. The 10 year standard deviation for VTSAX is 15.55. For reference the SP 500 is 15.06. Lower is better.

Quote
And your 'feeling' follows exactly what I've been describing as the known pattern of slightly harder downturns, but overall better long-term results.

Exactly! That is what I have been saying. You are taking on more risk for the chance to get higher returns. If you described what you are doing to any professional financial planner or investing professor they would tell you that you are taking on more risk(volatility) for the chance to get higher returns.

capitalninja

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Re: VIMAX to VTSAX? or not? What would you do
« Reply #17 on: January 17, 2016, 01:57:56 PM »
Risk is NOT equal to or (even remotely the same thing) as volatility.

From an investment perspective risk equates to *permanent* loss of principal (i.e. you invest in a company that goes bankruptcy).

Volatility is the fluctuation in price (what the market feels a given security is worth).

In the case of both securities you've listed, (VIMAX and VTSAX) the *risk* associated with owning both of them is practically zero. There simply will be more volatility (price fluctuation) in owning VIMAX vs. VTSAX.

Were I you, I wouldn't sell VIMAX. I'd simply achieve the weighting you want by allocating new investment dollars accordingly. If you feel that you're overweight in U.S. midcap, simply stop buying VIMAX and buy whatever securities you deem will bring you to the allocation you want.

Hope this helps.

Indexer

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Re: VIMAX to VTSAX? or not? What would you do
« Reply #18 on: January 17, 2016, 02:11:48 PM »
Sigh....

http://www.investopedia.com/terms/r/risk.asp

"DEFINITION of 'Risk'
The chance that an investment's actual return will be different than expected. Risk includes the possibility of losing some or all of the original investment. Different versions of risk are usually measured by calculating the standard deviation of the historical returns or average returns of a specific investment. A high standard deviation indicates a high degree of risk."

Standard deviation = variability of returns from the mean = volatility = what the first sentence of that definition is describing.

As a side note I don't normally bring up that might save some time around the use of definitions... my bachelor's degree is in Finance and I'm studying for my masters. I work in investment management, and I use to work as a financial advisor.

capitalninja

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Re: VIMAX to VTSAX? or not? What would you do
« Reply #19 on: January 17, 2016, 02:55:39 PM »
Sigh....

http://www.investopedia.com/terms/r/risk.asp

"DEFINITION of 'Risk'
The chance that an investment's actual return will be different than expected. Risk includes the possibility of losing some or all of the original investment. Different versions of risk are usually measured by calculating the standard deviation of the historical returns or average returns of a specific investment. A high standard deviation indicates a high degree of risk."

Standard deviation = variability of returns from the mean = volatility = what the first sentence of that definition is describing.

As a side note I don't normally bring up that might save some time around the use of definitions... my bachelor's degree is in Finance and I'm studying for my masters. I work in investment management, and I use to work as a financial advisor.

Sigh....

If it's on the internet then it must be true right? I don't agree with how the majority of the financial industry defines risk. Investopedia could have saved time by simply defining risk as "the possibility of losing the original investment". All of the subsequent text around standard deviation and variability of returns is filler. Your net return (sans accounting for taxes and inflation) is a combination of dividend income received during the holding period and the delta between the price paid and the price sold minus any expenses incurred. Easy.

As an example, betting all of your money on a hand of blackjack is risky because there's the very real possibility of total loss of principal. It's also speculation/gambling which is really the way that most people treat their buying/selling of securities.

Buying VTSAX (which represents the entire US stock market) is about as free from risk as you can get. While the price my vary (volatility), for there to be a total loss of principal every business represented by it would have to be in dire financial trouble. Were that to happen, your portfolio return would probably be the last thing you'd be worried about.

Frankly, the idiotic idea that volatility equals risk is a huge contributor to the psychology that makes the masses think that selling their positions when the market goes down is a good idea. "My stock/mutual fund/etf values have gone down therefore the market is risky" is a common sentiment that is also completely inaccurate. Lower prices represent a BUYING opportunity; not a selling opportunity.

The belief that Volatility == Risk will keep you poor.
« Last Edit: January 17, 2016, 02:58:19 PM by capitalninja »

MustacheAndaHalf

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Re: VIMAX to VTSAX? or not? What would you do
« Reply #20 on: January 17, 2016, 05:44:43 PM »
I'd say an argument could be made for both terms:
Day to day risk?  Volatility.
Risk of not retiring?  Lower total returns over many years.

AZryan

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Re: VIMAX to VTSAX? or not? What would you do
« Reply #21 on: January 18, 2016, 12:24:11 AM »
Quote from: Indexer
One more time. I'm not saying what you are doing is wrong.

I never said you were, so repeating it is totally pointless.

Quote from: Indexer
I'm just pointing out that VIMAX is higher risk than VTSAX in the short term.

Hold on -that's the first time you added 'in the short term' which is a critical modifier to your point. As everyone here knows, the short term performance of index funds are pointless and should be ignored. This makes your new point equally pointless.

But cherry pick most any random short time-frame and VIMAX probably still did better anyway.

You're only seeing one very narrow-sighted, jargon-bent version of the broadly-useful word 'risk'. Risk is not a synonym for volatility. And actually, people on finance forums do often use the word risk to mean all sorts of different things to describe various things they're risking.

Quote from: Indexer
VTSAX is a whole lot more diversified(3757 companies VS 365)-

You should be on the Fox Business debate stage. heh

From MMM himself on down to a hundred other posters here, VTSAX is considered basically interchangeable with the 500 Index which is merely 503 companies. So while VTSAX is 8 or 9X more diversified than the 500 or Mid-Cap Index, it's really just disingenuous slight of hand.

VTSAX having 3757 companies is almost totally meaningless compared to the fact that it's SO heavily weighted to the Mega-caps at the very top -market weighting making the 500 Index functionally (almost) identical with only ~40% more companies than VIMAX.
I think studies have shown it only takes about 20 random stocks to be about as diversified as a certain number alone can make you.

Quote from: Indexer
lower cost(0.05 VS 0.09),

Both dead low, but the difference has never been in dispute and doesn't itself define greater risk.

Quote from: Indexer
has less volatility,

Similar, but again... facts not in dispute.

Quote from: Indexer
and has larger companies in it than VIMAX.

I stated that myself more than once specifically for your sake! Yeesh.
Fine... ignore my point about the Mega caps in VTSAX/500 Index and don't address my challenge of your claim that market cap apparently equals 'better established companies'.

A little company that's be profitable and around for 100 years is far more stable and well-established than any of the dot-coms that went poof in the 2000's. And I'd argue that Mega-caps like Apple--an insignificant company on the brink of collapse pre-iPhone--and Facebook--a company that doesn't really make anything and could go up in smoke as easily as mySpace did--aren't really safer than dozens of solid, well known, long-time brands you'd own in VIMAX for the same percent of your $$.

Quote from: Indexer
VIMAX is higher risk no matter what measurement you use.

That's just not true at all. It's only true by the one version of 'risk' that you use.

Quote from: Indexer
I don't know why that requires so much explanation.

Because you don't realize that you're wrong.

Quote from: Indexer
The 10 year standard deviation for VIMAX is 17.69. The 10 year standard deviation for VTSAX is 15.55. For reference the SP 500 is 15.06. Lower is better.

Better for what? What are you actually getting? And is that answer really your investment goal??

Those numbers do not necessarily even define risk. It is volatility, so just say volatility and be right 100% of the time. But if you MUST insist on saying it's risk, then you have to understand that it's only one version of risk. And it's a pretty lousy version compared to other factors at risk for an investor.

Quote from: Indexer
If you described what you are doing to any professional financial planner or investing professor they would tell you that you are taking on more risk(volatility) for the chance to get higher returns.

I agree that most finance professionals would probably say risk/volatility as interchangeable terms. But they're just parroting the same thing you are and not grasping the important difference.

It would be better for them (you, everyone) to just to say volatility if they're talking about volatility.

Tell me... if you're a buy and holder... what greater risk is VIMAX vs. VTSAX actually putting you at risk of?
A possible slightly greater, short term loss if you're forced to sell at such a rare, random, stupid time? Hardly a solid argument.

AZryan

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Re: VIMAX to VTSAX? or not? What would you do
« Reply #22 on: January 18, 2016, 12:44:44 AM »
Quote from: MustacheAndaHalf
I'd say an argument could be made for both terms:
Day to day risk?  Volatility.
Risk of not retiring?  Lower total returns over many years.

That argument's already been made before you posted.

Risk can relate to lots of different things -even when only talking 'in relation to investing'. The hope is to recognize as much of it as you can and prioritize it all rationally to fit your own goals.

Often one risk demands that you balance an opposite risk. For example -The air is polluted, so you greatly lower your risk of breathing pollution by holding your breath. Of course, you then greatly raise your risk of imminent death. So that trade off is pretty easy to balance/prioritize.
If you were in Beijing you might buy a gasmask to insure both risks remain low.

The argument has mainly been that Indexer sees a pretty low priority, highly debatable version of risk as the only version that technically (or "officially") exists (in relation to investing). And that you trade risk for profit, when you're really trading 'short term volatility' for 'long term profit' -which should be an easy trade of risks for the sort of buy n' hold, anti-market timing investors here that rightfully ignore short term risk as just a distraction.

Indexer

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Re: VIMAX to VTSAX? or not? What would you do
« Reply #23 on: January 18, 2016, 07:24:26 AM »
Quote from: Indexer
VIMAX is higher risk no matter what measurement you use.

That's just not true at all. It's only true by the one version of 'risk' that you use.

I think this is the heart of the disconnect. AZryan, I'm not using one version of the term 'risk.'  I'm using it per its actual definition in the context of investments. The entire investment industry, academia, and a majority of investors use the term the same way. Finance 101 test books, the series 7 licensing exam for investment professionals, investopedia, wikipedia, the CFP board, modern portfolio theory, Vanguard, Fidelity, Schwab, etc. all use the term the same way. If you choose to use it differently I don't really know where to go with that.

The fact that your portfolio could be invested in assets that lack the long term returns to achieve your goals has its own definition:  shortfall risk. This is a very specific risk, and unless someone is specific that this is what they are referring then it is safe to assume this isn't what they are referring to. I know now that this is what you have been referring to, but if someone is talking about investment related risk in general they probably aren't referring to shortfall risk.


If you feel what you are doing is suitable for your situation, and you are comfortable taking on more volatility(risk) then feel free to do so. We don't need to argue about definitions. You are accepting more volatility of returns for the chance at higher returns over time. If we agree there that is all I am concerned about. I just wanted to make sure you knew that is what you are doing, because the belief that one can get higher returns without taking on anymore risk tends to get investors into trouble.

Jack

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Re: VIMAX to VTSAX? or not? What would you do
« Reply #24 on: January 18, 2016, 08:28:43 AM »
I bought VIMAX because I wanted higher returns than VTSAX.

Quote from: Jack
No you didn't; -...plus stuff that makes sense yet doesn't prove azryan wrong at all -

Yes..... I did. And got higher returns -as was likely, though admittedly not guaranteed or promised. I don't get your argument against this simple and true statement that you can't seem to accept.

Quote from: Jack
The point I'm trying to make is- inserts terms and Wikipedia links rather than make actual point-

The fact that you're apparently incapable of understanding my argument does not make it wrong.

See all that stuff you wrote talking about mega caps vs. large caps vs. mid caps and how you think Apple is riskier than smaller companies, and therefore prefer to tilt away from it? That's fundamental analysis, and that's good! You do realize that's different than just looking at a "growth of $10K" chart and buying whichever fund has the biggest number, disregarding what companies it holds, right?

Aphalite

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Re: VIMAX to VTSAX? or not? What would you do
« Reply #25 on: January 18, 2016, 09:01:40 AM »
Risk is NOT equal to or (even remotely the same thing) as volatility.

From an investment perspective risk equates to *permanent* loss of principal (i.e. you invest in a company that goes bankruptcy).

Volatility is the fluctuation in price (what the market feels a given security is worth).

THANK YOU

The misinformation around here on risk=volatility and EMH and CAPM=best model in the world is so idiotic. Just because an equation is mathematically elegant doesn't mean it works in the real world

Aphalite

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Re: VIMAX to VTSAX? or not? What would you do
« Reply #26 on: January 18, 2016, 09:15:57 AM »
The entire investment industry, academia, and a majority of investors use the term the same way. Finance 101 test books, the series 7 licensing exam for investment professionals, investopedia, wikipedia, the CFP board, modern portfolio theory, Vanguard, Fidelity, Schwab, etc. all use the term the same way.

Since you're so keen on using investopedia, maybe you should read the extended definition of beta/volatility and the implications for using it as a long term investor vs as a trader/short term investor:
http://www.investopedia.com/articles/stocks/04/113004.asp

By the way, here's a direct quote from Warren Buffett in 1990 (!!!) on using beta as a measure of risk (and he's not the only one, Klarman, Marks, and lots of respected money managers outright reject it as having any usefulness except in short term option pricing, as one very famous academic has quipped - “Markets look a lot more efficient from the banks of the Charles than from the banks of the Hudson.”): “Now, under the whole theory of beta and modern portfolio theory, we would have been doing something riskier buying the stock (WashPost) for $40 million than we were buying it for $80 million, even though it’s worth $400 million – because it would have had more volatility. With that, they’ve lost me."

If you are interested in reading further (I suspect not since from all of your posts it seems you hold dearly inconsistency avoidance in your life and knowledge base), the 1993 letter to shareholders at http://www.berkshirehathaway.com/letters/1993.html lays this out, start with this paragraph:
" Academics, however, like to define investment "risk"
differently, averring that it is the relative volatility of a stock
or portfolio of stocks - that is, their volatility as compared to
that of a large universe of stocks.  Employing data bases and
statistical skills, these academics compute with precision the
"beta" of a stock - its relative volatility in the past - and then
build arcane investment and capital-allocation theories around this
calculation.  In their hunger for a single statistic to measure
risk, however, they forget a fundamental principle:  It is better
to be approximately right than precisely wrong."

MustacheAndaHalf

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Re: VIMAX to VTSAX? or not? What would you do
« Reply #27 on: January 19, 2016, 01:36:13 AM »
https://www.portfoliovisualizer.com/backtest-asset-class-allocation provides a way to compare US Total Stock Market, US Large Cap (S&P 500), and US Mid Cap.  Running all 3 from 1972-2015 gives:

US Stock Market: 10.15% CAGR with volatility 17.93%
Large Cap Blend: 10.07% CAGR with volatility 17.61%
Mid Cap Blend: 12.19% CAGR with volatility 19.58%

AutoZealot

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Re: VIMAX to VTSAX? or not? What would you do
« Reply #28 on: January 19, 2016, 05:29:44 AM »
Running all 3 from 1972-2015 gives:

US Stock Market: 10.15% CAGR with volatility 17.93%
Large Cap Blend: 10.07% CAGR with volatility 17.61%
Mid Cap Blend: 12.19% CAGR with volatility 19.58%

@Mustache1.5 - any particular reason to choose 1972 as the starting point? j/c

AZryan

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Re: VIMAX to VTSAX? or not? What would you do
« Reply #29 on: January 19, 2016, 10:34:52 AM »
Quote from: AutoZealot
~ why 1972?

That's as far back as portfoliovisualizer's data shows. Same for http://portfoliocharts.com/

FerrumB5

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Re: VIMAX to VTSAX? or not? What would you do
« Reply #30 on: January 19, 2016, 10:40:39 AM »
I agree with acanthurus, with one caveat.  Make sure you've held VIMAX 61 days.  The dividends you got in December are retroactively either qualified or non-qualified depending on if you've met that IRS holding period.

Sell at a ~$3500 loss now and switch to Vanguard Total Stock Market.  Then later this year, the first $3500 of capital gains will be canceled out by the sale you made this month.  But make sure you hold this 61 days before the sale, to help the qualified dividends from December.

By the way, that's why companies can't mail out capital gains distributions until February.  You could buy a fund just before the dividend, and only 61 days later does anyone know if that dividend was qualified.

Is it 61 days since last contribution to it? I bought initial fund in mid Nov, and added 100 on Dec 1st

FerrumB5

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Re: VIMAX to VTSAX? or not? What would you do
« Reply #31 on: January 20, 2016, 06:42:15 PM »
Let me try to make a summary of questions:

1. Can I exchange VIMAX for VTSAX now, which is less than 61 days from most recent purchase of VIMAX (Dec 1st 2015)?
2. Is VTSAX different enough from VIMAX so I don't have to sell VIMAX and wait 31 days to buy VTSAX?
3. If capital loss is more than 3000, the unharvested part is used to lower my AGI until it's all "gone" in subsequent years?
4. Is (1) the best move given my funds holding period and market from an investor point of view? Of course it's my money and only I can really decide for myself.

Thanks!


capitalninja

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Re: VIMAX to VTSAX? or not? What would you do
« Reply #32 on: January 20, 2016, 06:57:50 PM »
Let me try to make a summary of questions:

1. Can I exchange VIMAX for VTSAX now, which is less than 61 days from most recent purchase of VIMAX (Dec 1st 2015)?
2. Is VTSAX different enough from VIMAX so I don't have to sell VIMAX and wait 31 days to buy VTSAX?
3. If capital loss is more than 3000, the unharvested part is used to lower my AGI until it's all "gone" in subsequent years?
4. Is (1) the best move given my funds holding period and market from an investor point of view? Of course it's my money and only I can really decide for myself.

Thanks!

1. Yes you can but why? What is your reason for doing this?

2. VTSAX will provide exposure to large and small cap business so "yes" is fairly different to VIMAX which is concentrated to Mid cap

3. Depends on your tax bracket. If you have a $3000 loss and you're in the 25% tax bracket, you lower you AGI by $750. It's not 1:1

4. Depends on what your investment policy dictates. If you're overweight in mid cap stocks you have the option of selling your VTSAX holdings or simply restoring balance by directing new investments to VTSAX. Really depends on what you're trying to do. If you don't have a reason for increasing your VTSAX holdings, it's probably best to do nothing. If you do have a reason to increase you VTSAX holdings but are fine with doing so over time, simply use new dollars to restore balance.

Hope this helps.