[tony]

http://online.wsj.com/article/SB124363555788367705.html

[sschullo]

So, what else is new?

Even if it is extremely rare, this level of pilfering is a disgrace.

Now why is this not a surprise:

A few exemplary firms, like T. Rowe Price Group and Vanguard Group, rebate all securities-lending income (net of expenses) back to the funds that generated it. The total cost of Vanguard's securities-lending program is well under 1%, says Tom Higgins, chief financial officer of the funds. That suggests that most of the 30%-to-50% toll charged by other fund managers is pure profit -- in effect, money for nothing.

[bigred]

So, what else is new?

Even if it is extremely rare, this level of pilfering is a disgrace.

Now why is this not a surprise:

A few exemplary firms, like T. Rowe Price Group and Vanguard Group, rebate all securities-lending income (net of expenses) back to the funds that generated it. The total cost of Vanguard's securities-lending program is well under 1%, says Tom Higgins, chief financial officer of the funds. That suggests that most of the 30%-to-50% toll charged by other fund managers is pure profit -- in effect, money for nothing.

http://www.hillinvestmentgroup.com/include...ment_whyDFA.pdf

Go to the 3rd page for the information on securities lending. Another reason why passive whips active.

Also read on articleon Yahoo Finance about gm being booted from the S&P 500 that said something like "Even thought the index has been forced to hold GM during this inevitable downfall they have still beaten 72% of mutual funds for the period." Active really helping there also.

[intruder]

So, what else is new?

Even if it is extremely rare, this level of pilfering is a disgrace.

Now why is this not a surprise:

A few exemplary firms, like T. Rowe Price Group and Vanguard Group, rebate all securities-lending income (net of expenses) back to the funds that generated it. The total cost of Vanguard's securities-lending program is well under 1%, says Tom Higgins, chief financial officer of the funds. That suggests that most of the 30%-to-50% toll charged by other fund managers is pure profit -- in effect, money for nothing.

http://www.hillinvestmentgroup.com/include...ment_whyDFA.pdf

Go to the 3rd page for the information on securities lending. Another reason why passive whips active.

Also read on articleon Yahoo Finance about gm being booted from the S&P 500 that said something like "Even thought the index has been forced to hold GM during this inevitable downfall they have still beaten 72% of mutual funds for the period." Active really helping there also.

RED:

According to DFA its investment style outperforms the passive indexes used by VG, e.g., S & P 500.

If DFA Value out performs growth index funds why bother investing in large cap growth funds such as the VG S & P 500 which has a -2.5% annual return for the last 10 years? Why not invest in DFA value funds?

If this is true why should anyone invest in VG passive index funds instead of DFA?

[bigred]

[/quote]

RED:

According to DFA its investment style outperforms the passive indexes used by VG, e.g., S & P 500.

If DFA Value out performs growth index funds why bother investing in large cap growth funds such as the VG S & P 500 which has a -2.5% annual return for the last 10 years? Why not invest in DFA value funds?

If this is true why should anyone invest in VG passive index funds instead of DFA?
[/quote]


You have hit the nail on the head. Now granted you still should have exposure to varied asset classes to create a truly diversified portfolio but your weightings should be heavily into the value realm.

The DFA approach is truly a passive approach, very similar to Vanguard except without the rigid need to follow an index in lockstep.

http://finance.yahoo.com/news/What-Impact-...set=&ccode=

It is pretty hard to make a good arguement for active when the S&P 500 was forced to own GM during the death spiral in the past couple years. The S&P 500 still beat 72% of active funds.

[sschullo]

Hi Big,
Your posts are conflicting. One sentence you like index funds but then you seem to not like VG.

Anyway, thats quite a claim to reject a traditional index fund just because it had to hold a failing company. Last I heard, GM is but ONE company in the 500. Nobody mentioned this argument when Enron failed, perhaps they did but who cares really about ONE company. Had I known that the one company would have failed and brought down the entire index, I would have bet the farm on the DFA. But all we have is the future. Who knows perhaps growth will outperform value, or big caps will outperform small caps. Past performance is no guarantee of future growth. Just because small cap outperformed large cap for the last 100 years, does not guarantee future returns.

DFA claims to outperform the standard index strategy as do most "enhanced index" managers.
We can go back and forth debating these strategies ad nausea. Two disadvantages: DFA is not available to 403b plans and one has to use a commissioned broker to purchase shares. Thanks, but no thanks.

Well, then there is a third problem: the claim of out performance. Here is an article that debunks enhanced indexing:
http://www.indexuniverse.com/sections/feat...kluster-07.html

I am quite possitive that these days the active managers are having a field day because the 500 is down for the last ten years, but they always fail to mention that the s&p 500 index is but one asset class in a portfolio mix. We also have international, bonds, small, REITS and mid cap in our portfolios. By the way, back in 1999 when the tech bubble was producing 100+ gains in some sector funds, we would have been laughted out of the room if we publically predicted that bonds would outperform stocks for the next ten years!

"Nothing is as futile as expecting past returns to be slavishly translated into future returns on a linear basis." --Jack Bogle

"Using past performance numbers as a method for choosing mutual funds is such a lousy idea that mutual fund companies are required by law to tell you it is a lousy idea." --Bill Shultheis, advisor and author of "The Coffeehouse Investor."

2 cents,
Steve

[bigred]

Hi Big,
Your posts are conflicting. One sentence you like index funds but then you seem to not like VG.

Anyway, thats quite a claim to reject a traditional index fund just because it had to hold a failing company. Last I heard, GM is but ONE company in the 500. Nobody mentioned this argument when Enron failed, perhaps they did but who cares really about ONE company. Had I known that the one company would have failed and brought down the entire index, I would have bet the farm on the DFA. But all we have is the future. Who knows perhaps growth will outperform value, or big caps will outperform small caps. Past performance is no guarantee of future growth. Just because small cap outperformed large cap for the last 100 years, does not guarantee future returns.

DFA claims to outperform the standard index strategy as do most "enhanced index" managers.
We can go back and forth debating these strategies ad nausea. Two disadvantages: DFA is not available to 403b plans and one has to use a commissioned broker to purchase shares. Thanks, but no thanks.

Well, then there is a third problem: the claim of out performance. Here is an article that debunks enhanced indexing:
http://www.indexuniverse.com/sections/feat...kluster-07.html

I am quite possitive that these days the active managers are having a field day because the 500 is down for the last ten years, but they always fail to mention that the s&p 500 index is but one asset class in a portfolio mix. We also have international, bonds, small, REITS and mid cap in our portfolios. By the way, back in 1999 when the tech bubble was producing 100+ gains in some sector funds, we would have been laughted out of the room if we publically predicted that bonds would outperform stocks for the next ten years!

"Nothing is as futile as expecting past returns to be slavishly translated into future returns on a linear basis." --Jack Bogle

"Using past performance numbers as a method for choosing mutual funds is such a lousy idea that mutual fund companies are required by law to tell you it is a lousy idea." --Bill Shultheis, advisor and author of "The Coffeehouse Investor."

2 cents,
Steve

Steve, I respect and appreciate your opinions and in fact agree with most of them.

Maybe my post does not put across my opinions because I am a poor writer and better speaker(I should have my wife post).

In my opinion DFA would be an A++ and Vanguard would be an A+. TIAA & T Rowe Price would earn some degree of A. I am sure I am leaving someone out but that's how I see it.

Anyway, thats quite a claim to reject a traditional index fund just because it had to hold a failing company. Last I heard, GM is but ONE company in the 500. Nobody mentioned this argument when Enron failed, perhaps they did but who cares really about ONE company.

This is part of the problem with rigidly following an index, although I still love them. They do not have to purchase and sell on telegraphed days. There is the big runup before that date and sell off after that date. They also would have been able to dump shares a couple weeks ago when all GM Execs dumped all of theirs.

DFA claims to outperform the standard index strategy as do most "enhanced index" managers.
We can go back and forth debating these strategies ad nausea. Two disadvantages: DFA is not available to 403b plans and one has to use a commissioned broker to purchase shares. Thanks, but no thanks.

DFA is available inside of 403b Plans and DFA funds are not purchased through a commissioned broker. They are available when there is a tie-in to an approved RIA.

Well, then there is a third problem: the claim of out performance. Here is an article that debunks enhanced indexing:
http://www.indexuniverse.com/sections/feat...kluster-07.html

I do not disagree with you that the enhanced indexes are mostly junk. To much "financial innovation" is their way of innovating their way into my pockets. EFT's are the same boat with some being very good and then a whole slew of crap. But I wonder how closely you read the article. There is a paragraph on how VQNPX returned 2.7% for 2007. The very next paragraph showed that DFELX had a 5.1% return for 2007. Your article helped prove my point but I'm not interested in how a fund did for a 1, 3 or 5 year period. I am in it for a much longer period.

Also I try to use Mr. Bogle's equity allocation % with a slight twist I know you will not like, but it works for me. Working years- Age minus 15 for your bond allocation. In drawdown-Age= bond allocation.

Other thoughts?

[Scottyd]

Hi Big,
Your posts are conflicting. One sentence you like index funds but then you seem to not like VG.

Anyway, thats quite a claim to reject a traditional index fund just because it had to hold a failing company. Last I heard, GM is but ONE company in the 500. Nobody mentioned this argument when Enron failed, perhaps they did but who cares really about ONE company. Had I known that the one company would have failed and brought down the entire index, I would have bet the farm on the DFA. But all we have is the future. Who knows perhaps growth will outperform value, or big caps will outperform small caps. Past performance is no guarantee of future growth. Just because small cap outperformed large cap for the last 100 years, does not guarantee future returns.

DFA claims to outperform the standard index strategy as do most "enhanced index" managers.
We can go back and forth debating these strategies ad nausea. Two disadvantages: DFA is not available to 403b plans and one has to use a commissioned broker to purchase shares. Thanks, but no thanks.

Well, then there is a third problem: the claim of out performance. Here is an article that debunks enhanced indexing:
http://www.indexuniverse.com/sections/feat...kluster-07.html

I am quite possitive that these days the active managers are having a field day because the 500 is down for the last ten years, but they always fail to mention that the s&p 500 index is but one asset class in a portfolio mix. We also have international, bonds, small, REITS and mid cap in our portfolios. By the way, back in 1999 when the tech bubble was producing 100+ gains in some sector funds, we would have been laughted out of the room if we publically predicted that bonds would outperform stocks for the next ten years!

"Nothing is as futile as expecting past returns to be slavishly translated into future returns on a linear basis." --Jack Bogle

"Using past performance numbers as a method for choosing mutual funds is such a lousy idea that mutual fund companies are required by law to tell you it is a lousy idea." --Bill Shultheis, advisor and author of "The Coffeehouse Investor."

2 cents,
Steve

Steve, I respect and appreciate your opinions and in fact agree with most of them.

Maybe my post does not put across my opinions because I am a poor writer and better speaker(I should have my wife post).

In my opinion DFA would be an A++ and Vanguard would be an A+. TIAA & T Rowe Price would earn some degree of A. I am sure I am leaving someone out but that's how I see it.

Anyway, thats quite a claim to reject a traditional index fund just because it had to hold a failing company. Last I heard, GM is but ONE company in the 500. Nobody mentioned this argument when Enron failed, perhaps they did but who cares really about ONE company.

This is part of the problem with rigidly following an index, although I still love them. They do not have to purchase and sell on telegraphed days. There is the big runup before that date and sell off after that date. They also would have been able to dump shares a couple weeks ago when all GM Execs dumped all of theirs.

DFA claims to outperform the standard index strategy as do most "enhanced index" managers.
We can go back and forth debating these strategies ad nausea. Two disadvantages: DFA is not available to 403b plans and one has to use a commissioned broker to purchase shares. Thanks, but no thanks.

DFA is available inside of 403b Plans and DFA funds are not purchased through a commissioned broker. They are available when there is a tie-in to an approved RIA.

Well, then there is a third problem: the claim of out performance. Here is an article that debunks enhanced indexing:
http://www.indexuniverse.com/sections/feat...kluster-07.html

I do not disagree with you that the enhanced indexes are mostly junk. To much "financial innovation" is their way of innovating their way into my pockets. EFT's are the same boat with some being very good and then a whole slew of crap. But I wonder how closely you read the article. There is a paragraph on how VQNPX returned 2.7% for 2007. The very next paragraph showed that DFELX had a 5.1% return for 2007. Your article helped prove my point but I'm not interested in how a fund did for a 1, 3 or 5 year period. I am in it for a much longer period.

Also I try to use Mr. Bogle's equity allocation % with a slight twist I know you will not like, but it works for me. Working years- Age minus 15 for your bond allocation. In drawdown-Age= bond allocation.

Other thoughts?

DFA is available without a broker in the CalSTRS Pension2 plan (DFA Global Equity Fund).

Just and FYI.

ScottyD

[sschullo]

I do not disagree with you that the enhanced indexes are mostly junk. To much "financial innovation" is their way of innovating their way into my pockets. EFT's are the same boat with some being very good and then a whole slew of crap. But I wonder how closely you read the article. There is a paragraph on how VQNPX returned 2.7% for 2007. The very next paragraph showed that DFELX had a 5.1% return for 2007. Your article helped prove my point but I'm not interested in how a fund did for a 1, 3 or 5 year period. I am in it for a much longer period.

Also I try to use Mr. Bogle's equity allocation % with a slight twist I know you will not like, but it works for me. Working years- Age minus 15 for your bond allocation. In drawdown-Age= bond allocation.

Other thoughts?

Yes! I don't know if I don't like it because I don't understand your equity allocation formulas. For example: 10 years of working left minus 50 years old minus 15 for your bond allocation?? Add the minuses to 75%? What is drawdown?

I like this formula: Risk tolerance ###### 2 = bond allocation. I got this from Adrian over at Bogleheads forum. In other words if you think your risk tolerance is 30% bonds, double it and 60% is ones real risk tolerance. Its so easy to say I am very aggressive when the market is going up, but that asset allocation is unsustainable when the market crashes and most will quickly change their asset allocation when its too late. That is a losers game. Increasing ones risk tolerance by 2 makes it more likely the investor will stick with their plan. Thats a winners game.


Oh, I read the article and agree that in some cases during 1,3, and five years, many, many funds whipped most or all of VG funds and you can cherry pick funds that do beat the indices. I will like to say that ten years is also short term thinking.

It is always quite amusing that you describe an index fund as "rigid", somehow rigidity is suppose to be a disadvantage. I think its an advantage and the start of the active passive debate. Sure your point out that the main disadvantage is that it could not get rid of GM but the DFA could and therefore the main reason the DFA outperformed the index. Thats not a good enough reason to use DFAs from now on. You left other significant factors (I know you know this already), with an index fund one never underperform the market, lower taxes in a taxable account and the costs are very low. Using many index accross the asset classes with bond allocation and the everyday investor has a solid portfolio. It is a lot of risk for an investor to be in a DFA account because someone has to make a decision, so if selling GM is a good decision, why not start actively managing more often and now you see my problem with enhanced funds. DFA is an enhanced fund.

Steve

DFA is available without a broker in the CalSTRS Pension2 plan (DFA Global Equity Fund).

Just and FYI.

ScottyD

Thanks Scotty.

[bigred]

Yes! I don't know if I don't like it because I don't understand your equity allocation formulas. For example: 10 years of working left minus 50 years old minus 15 for your bond allocation?? Add the minuses to 75%? What is drawdown?

I like this formula: Risk tolerance ###### 2 = bond allocation. I got this from Adrian over at Bogleheads forum. In other words if you think your risk tolerance is 30% bonds, double it and 60% is ones real risk tolerance. Its so easy to say I am very aggressive when the market is going up, but that asset allocation is unsustainable when the market crashes and most will quickly change their asset allocation when its too late. That is a losers game. Increasing ones risk tolerance by 2 makes it more likely the investor will stick with their plan. Thats a winners game.

My twist. Age 30 less factor of 15=15. Stock Allocation 85% Bond Allocation 15% Age 40 less 15= 25 Stock Allocation 75% Bond 25%.

By drawdown I mean during retirement when are beginning to use those funds for living. Say retire @ 55, don't need this cash until 60 so @ 60 you are 40% Equity 60% Bonds. I like Bogle's rule but when you very young and in the accumulative stage it seems to be slightly too conservative. It is ideal for the 55-60 on up age range.

Oh, I read the article and agree that in some cases during 1,3, and five years, many, many funds whipped most or all of VG funds and you can cherry pick funds that do beat the indices. I will like to say that ten years is also short term thinking.

Warren Buffett "My favorite holding period is forever." I hope I can achieve something close to that. I agree that you can cherry pick anything and hindsight is 20/20. I just found it ironic that an apples to apples comparison of our discussion was right there in the article.

It is always quite amusing that you describe an index fund as "rigid", somehow rigidity is suppose to be a disadvantage. I think its an advantage and the start of the active passive debate. Sure your point out that the main disadvantage is that it could not get rid of GM but the DFA could and therefore the main reason the DFA outperformed the index. Thats not a good enough reason to use DFAs from now on. You left other significant factors (I know you know this already), with an index fund one never underperform the market, lower taxes in a taxable account and the costs are very low. Using many index accross the asset classes with bond allocation and the everyday investor has a solid portfolio. It is a lot of risk for an investor to be in a DFA account because someone has to make a decision, so if selling GM is a good decision, why not start actively managing more often and now you see my problem with enhanced funds. DFA is an enhanced fund.

Steve

I am very sorry if you feel you must lump in DFA with all of the other enhanced funds, because they are not the same type of company at all. Now watch what is happening with Cisco Systems as it is being added to DJIA. Studies have shown that there has been shown a price increase after announcement, leading up through the effective date, and then a drop off after that date. I agree that there are studies for most sides of arguements but this is a pretty basic principle. DFA operates the funds very similarly to an index and the above is a main difference and the other main difference is the way they define the market and include many more stocks than Vanguard and others do.

Steve I hope you enjoy the spirited debate as much as I do. I think it is fun to have my principles challenged.

[intruder]

The fallacy of stock indexing as practiced under the efficient market hypothesis (EFM) is that bigger is always better because no one knows any better, e.g, a stock that doubles or triples in price over a short period is worth more than a stock that appreciates by a lesser mutliple because the value of the index increases more rapidly. This results in index funds compulsively buying up shares of overvalued companies durign an economic bubble and being left holding millions of shares of over priced stocks in companies when the bubble collapses. For example, at the peak of the tech bubble in April 2000 Cisco, which makes routers for the internet, was briefly the largest company in the S & P 500 by market capitalization with a value of $550B because its stock was priced at $130 a share. Index funds dutifully followed the EFM and purchased more and more shares of Cisco as its price increased to match the increase in its market capitalization until the tech bubble burst. Today Cisco's market capitalization is about $100B and its stock trades at about $18.5. The value of Cisco stock is about 15% of what it was at its peak. But the index funds still hold Cisco (its one of the top ten holdings of the VG S & P 500). There are/were many other stocks like Cisco in the S & P 500 including Lucent which went from 80 to about 2 before it was put out of its misery, Enron (bankruptcy), Fannie, Freddie, AIG (government takeovers) that now sell for less than a $1.

The defining inefficiency which characterizes all stock index funds is that they are compulsive buyers of over priced growth stocks whose prices are inflated by the periodic economic bubbles, e.g., the tech bubble that burst from 2000-2003 and the housing bubble that started to implode in 2007 and continues today which leaves the index funds holding stocks with huge losses when the markets recede. A stock index fund is nothing more than a momentum trader which lacks sell discipline. The average return for the VG S & P 500 for the last 10 years is -2.5% and it will take another economic bubble to make up for the performance of the last 10 years and put the VG S & P 500 into positive territory until that bubble collapses at a future time and the VG S & P 500 will again regress to its negative mean.

[sschullo]

Intruder,
I understand your point but I don't think the EMH has anything to do with bubbles or index funds. Frankly, I don't know or care if the EMH is valid or not. All I care is that my risk is diversified across asset classes with bonds and the cost low. Modern Portfolio Theory works. Cisco is only in ONE index, the s&p 500. If investors were only invested in the s&p 500 for the last ten years, they are NOT diversified. Pure and simple.

EMH says that prices reflect all available information. Does not mean that current prices are correct, born of rationality or comprehensible. In fact, stock prices are so unpredictable and random that they are totally and completely inscrutable. The better investor understand this simple concept, the more investor will invest in securities that trail the leading indexes.

When you say, "A stock index fund is nothing more than a momentum trader which lacks sell discipline." You are either joking, you don't understand indexing or you are just trying to encite another one of your trivial flame wars. If you have a better strategy than indexing, what is it? (Please don't say that active management does better than indexes over long periods of time because active management is a losers game). Remember, Bogle, Ricci, Swedroe, Bernstein, Otter, French, Fama, Siegal, Larimore, et. al might be listening.
Steve

[sschullo]

Yes! I don't know if I don't like it because I don't understand your equity allocation formulas. For example: 10 years of working left minus 50 years old minus 15 for your bond allocation?? Add the minuses to 75%? What is drawdown?

I like this formula: Risk tolerance ###### 2 = bond allocation. I got this from Adrian over at Bogleheads forum. In other words if you think your risk tolerance is 30% bonds, double it and 60% is ones real risk tolerance. Its so easy to say I am very aggressive when the market is going up, but that asset allocation is unsustainable when the market crashes and most will quickly change their asset allocation when its too late. That is a losers game. Increasing ones risk tolerance by 2 makes it more likely the investor will stick with their plan. Thats a winners game.

My twist. Age 30 less factor of 15=15. Stock Allocation 85% Bond Allocation 15% Age 40 less 15= 25 Stock Allocation 75% Bond 25%.

By drawdown I mean during retirement when are beginning to use those funds for living. Say retire @ 55, don't need this cash until 60 so @ 60 you are 40% Equity 60% Bonds. I like Bogle's rule but when you very young and in the accumulative stage it seems to be slightly too conservative. It is ideal for the 55-60 on up age range.

Oh, I read the article and agree that in some cases during 1,3, and five years, many, many funds whipped most or all of VG funds and you can cherry pick funds that do beat the indices. I will like to say that ten years is also short term thinking.

Warren Buffett "My favorite holding period is forever." I hope I can achieve something close to that. I agree that you can cherry pick anything and hindsight is 20/20. I just found it ironic that an apples to apples comparison of our discussion was right there in the article.

It is always quite amusing that you describe an index fund as "rigid", somehow rigidity is suppose to be a disadvantage. I think its an advantage and the start of the active passive debate. Sure your point out that the main disadvantage is that it could not get rid of GM but the DFA could and therefore the main reason the DFA outperformed the index. Thats not a good enough reason to use DFAs from now on. You left other significant factors (I know you know this already), with an index fund one never underperform the market, lower taxes in a taxable account and the costs are very low. Using many index accross the asset classes with bond allocation and the everyday investor has a solid portfolio. It is a lot of risk for an investor to be in a DFA account because someone has to make a decision, so if selling GM is a good decision, why not start actively managing more often and now you see my problem with enhanced funds. DFA is an enhanced fund.

Steve

I am very sorry if you feel you must lump in DFA with all of the other enhanced funds, because they are not the same type of company at all. Now watch what is happening with Cisco Systems as it is being added to DJIA. Studies have shown that there has been shown a price increase after announcement, leading up through the effective date, and then a drop off after that date. I agree that there are studies for most sides of arguements but this is a pretty basic principle. DFA operates the funds very similarly to an index and the above is a main difference and the other main difference is the way they define the market and include many more stocks than Vanguard and others do.

Steve I hope you enjoy the spirited debate as much as I do. I think it is fun to have my principles challenged.

Hi Big,
I agree that a younger person with a long time horizon should have 80% to 90% equities. But they need to understand, really understand the risk involved. Because sticking with a plan is so vital. Even younger investors who cannot stomach the downturns will turn and run from their plan. Frankly, the sure way to learn about ones risk tolerance is to experience losing 50-70% of your money. Filling out a questionnaire is nice, but it is nowhere near as complete as EXPERIENCING a real loss to learn about risk. This happened to me and for that I am forever grateful for that experience. The lesson on risk is more important than all of the other investments concepts put together. It is more important than diversification, knowledge of stock market history, knowing the differences between value and growth, knowing the impact of costs, knowing the difference between a sales pitch and objective information. If one understands risk both from each person and one's portfolio, all of the other concepts follow.

As far as "dumping DFA" with the other enhanced indexes, I meant that once the indexes are "managed" ever so slightly, they become something other than an index. Perhaps DFA is not an enhanced index. William Bernstein speaks highly of DFA with a caveat. He says that if you have to use an adviser, use an adviser that has access to DFA. DFA has many index funds and are low priced. And he also says that if you have to get an adviser only to invest in DFA, forget it. The added expense may not be worth it.
Until you mentioned it, I did not know that DFAs indexes were managed as you stated, they took out losing stocks. Bernstein never mentioned that in his book.

Did it occur to you that perhaps you were challenging my principles!
:-)

Steve

[bigred]

I agree that a younger person with a long time horizon should have 80% to 90% equities. But they need to understand, really understand the risk involved. Because sticking with a plan is so vital. Even younger investors who cannot stomach the downturns will turn and run from their plan. Frankly, the sure way to learn about ones risk tolerance is to experience losing 50-70% of your money. Filling out a questionnaire is nice, but it is nowhere near as complete as EXPERIENCING a real loss to learn about risk. This happened to me and for that I am forever grateful for that experience. The lesson on risk is more important than all of the other investments concepts put together. It is more important than diversification, knowledge of stock market history, knowing the differences between value and growth, knowing the impact of costs, knowing the difference between a sales pitch and objective information. If one understands risk both from each person and one's portfolio, all of the other concepts follow.

Agreed. Most of us will never forget the past 9 months. And now know who can and cannot stick with a plan(it could still get real ugly again).

As far as "dumping DFA" with the other enhanced indexes, I meant that once the indexes are "managed" ever so slightly, they become something other than an index. Perhaps DFA is not an enhanced index. William Bernstein speaks highly of DFA with a caveat. He says that if you have to use an adviser, use an adviser that has access to DFA. DFA has many index funds and are low priced. And he also says that if you have to get an adviser only to invest in DFA, forget it. The added expense may not be worth it.
Until you mentioned it, I did not know that DFAs indexes were managed as you stated, they took out losing stocks. Bernstein never mentioned that in his book.

I do not have any knowledge whether or not they did do anything but they have the flexibility allowed to do it. The biggest differences are the way they define an asset class, say US small cap value, VISVX owns 980 stocks while, DFFVX owns 1,554. And the other portion that makes sense is the not having to buy on EXACT day of inclusion to an index. You have to trust a company to stick to these principles and DFA has. They do not even have a 1-800 number I am told. I like that. As far as the advisor, to each their own. If you have retirment plan access take advantage of it. But it seems like they can possibly provide a slight increase in returns and they are definitely going to push you for a larger equity stake. They are also going to make sure that you are really globally diversified.

[sschullo]

Back to the original topic. Its not just the mutual fund companies but the greedy CEOs who must live in their "entitlement culture" by excessive compensation. Take, take and take more, thats their motto.
Read an excellant article by our hero Kathy Kristoff: http://www.facebook.com/ext/share.php?sid=...B3GU&ref=nf