This article reviews a no load funds investment book that is one of the most useful personal investment books you will find. Named Low Cost Mutual Funds and ETFs, this investment education book addresses the biggest challenge that many personal investors are confronted with: investing fees which are much too excessive.

Also, the book provides a clear and easy to understand description concerning what works regarding individual investing strategies, and it summarizes straight forward how-to information. With this book it is easy to find the lowest cost index mutual funds and exchange-traded funds.

This book lists the 212 very lowest cost no load index mutual funds in 30 different asset categories, plus it lists 208 very lowest cost ETFs in 27 separate categories. All these lists are screened with factors supported by academic investment research that are explained in this useful investing book. These top no load funds and ETF lists offer a full spectrum of low cost no load mutual fund and ETF choices for any investor.

This very useful book of over 250 pages was written and researched by Larry Russell, who is an experienced financial advisor in Pasadena, California who has degrees from MIT, Brandeis University, and Stanford University.

The problem with long term investments: The great majority of investors pay far too much in investing fees and costs and receive far too little in exchange for these costs

Charging individual investors extremely high for its purportedly greater insight, the vast majority of the financial services industry really just feeds on the returns and assets of individual investors without contributing net positive value. In a nutshell, you are simply a financial services industry revenue and profit center.

The investment industry makes the investing process overly and unnecessarily complex, by flooding the market with complex investment products and services that are unjustifiably expensive. Then, the investment industry provides self-interested and biased “free advice” on selecting investments, and this is the most costly “free advice” naive investors will receive in their lives. Without looking for less expensive investment services and products, such as the best no load funds listed in theis book, investors are far more likely to receive recommendations to buy these excessively costly securities services and products.

Unjustifiably expensive securities products and services are your real enemy as you invest. The more that you allow the financial industry take from you, the less your family will have. Keep your assets. You do not have to participate in this unfair game.

With the help of this Low Cost Mutual Funds and ETFs investment book you can quickly reduce your long term investment fees, reduce your portfolio risk, and enhance your retained investing earnings. Reducing your investing fees down to the bone is the most significant investment strategy available to you.

For decades, inexpensive noload mutual funds and more recently lowest cost exchange-traded funds have produced better returns accounting for risk. After taxes and costs have been accounted for, investors simply hold on to more of their investment return. In addition, investors who buy lowest cost index funds reduce risk, expend much less effort, are not subjected to pressure sales tactics, experience much less hassle, plus save time on their retirement investments.

You can make your own investments directly with investment funds, and you can a better job of it. All you need is correct investment information. For some absolutely straight investment eductation information on what actually works with individual investments get this book.

Information about the top no load funds and ETFs in this investment education book

This investing book provides lists of 212 lowest cost noload mutual funds and 208 lowest cost ETFs in 30 and 27 separate classes, respectively. Included noload mutual funds and index ETFs are characterized by having no sales loads, no marketing charges, and the lowest management fees. In addition, included index funds have significantly reduced investment portfolio turnover which is associated with lower securities trading expenses.

The listings of noload mutual funds and ETFs cover:

• Global, international, and US multi-cap, large-cap, mid-cap, and small-cap stock investment funds with low costs with growth and value equity investment funds
• US, global, and international long-, intermediate-, and short-term government, treasury, corporate, municipal, and inflation protected fixed income investment funds with low costs
• Money funds and real estate funds with low costs

With this book you can select a lowest cost retirement investment portfolio which is fully diversified by investment asset class and geography

Your savings with this useful noload mutual funds investment book

Depending upon how big your portfolio is, this modestly priced investment education book would save you hundreds or thousands of dollars year in and year out. If you lower your total long term investment expenses and costs by just a single percent of assets a year and you have a no load mutual fund investment portfolio of $10,000, your investment savings will be $100 per year. If you have $50,000, you would save $500 each year. If you have $100,000, you would save $1,000 per year. Because total annual investment fees and expenses paid by the average individual investor add up to between 2% and 2 & 1/2% a year, the great majority of investors would in reality save two percent annually. Therefore, these annual investing savings on total fees and expenses savings could be double per year — across their entire lives.

Some might think: “Sure this is what I could save, however when I spend more, I would receive higher investment yields.” Sorry, unfortunately financial research clearly will not justify paying more in costs for either sales load or no load bond funds. These are just a few financial research quotes from this book:

• “109 of these 111 comparisons indicated that higher bond expenses meant lower returns.”
• “Annual under performance of the broker-sold funds at $4.6 billion dollars…and $9.8 billion in 12b-1 fees … other distribution fees such as loads.”
• “The inferiority of active investment strategies … across the various countries, when the time horizon increases active strategies are increasingly inferior.”

If you actually think you will receive better investment return, when you pay increased fees versus reduced expenses, then you really do need to get and read this important investing book! This added investor education information helps this to be one of thebest books on investing out there.

Summary of author’s background

This individual investor book, by Lawrence Russell has been written with his objective and in-depth knowledge concerning what really works in personal financial practices and retirement investment methods. He is a knowledgeable fee only financial planner in the Pasadena and LA, California area. His stated objective is “to improve people’s knowledge and improve their capability in managing their own finance and long term investment situations.”

Larry is the author and publisher of many personal finance publications on the web and the designer and developer of automated home lifetime financial planning software. Across decades, Larry has extensive knowledge in finance, economics, investments, taxation, accounting, probability, statistics, software development, and web technologies. Over twenty-five years, he worked as an executive and manager in the software industry with firms like Sun Microsystems and Hewlett-Packard.

Retiring from the industry in 2001, Larry started a systematic and in-depth reading of the research literature that affected retirement investments and financial planning for his own interest. To make this research literature better available for individual investors, during 2003, he started to author and publish finance and investments academic research article summaries on his oldest how to invest money education website, The Skilled Investor. From 2003, Larry has authored and published in excess of 1,000 investments and personal finance postings across a half-dozen of his personal finance and investing sites. A portion of this personal finance book was drawn from these web articles, and links provided in this ebook enable you to explore his investing and personal finance websites.

Also in 2003, Larry started to develop sophisticated and highly customizable do-it-yourself lifetime financial planning software. This investing and personal finance software worksheet, VeriPlan, was developed at the beginning to serve as a personal finance decision support application for financial advisory customers. In 2006, he started to design and develop an individual user configuration of VeriPlan which home individuals can use themselves. VeriPlan is now the most sophisticated and highly customizable do-it-yourself life cycle personal finance software that is available on the public market for much less than competitors investments and personal finance software tools.

(Investing book cover watering can photograph taken by Alan Cleaver on Flickr.com)

This investing analysis covers much lower expense large cap value mutual funds. In this summary, we consider the top 10 large cap value mutual funds, which have much lower investment fees compared to the average large cap value mutual fund. The primary goal of this report is to list lower expense large cap, no load value mutual funds, since lower investment management expense ratios are key, when you are choosing the best large cap value funds. This investment summary explains the reasoning.

Top ten large cap value mutual funds with the lowest investment fees

1. Vanguard Value Index – Admiral
   • 0.14% — annual management expense ratio including 12b-1 fee (if any)
   • n/a — taxable account minimum investment
   • VVIAX — ticker symbol
2. Vanguard Value Index – Investor
   • 0.26% — annual management expense ratio including 12b-1 fee (if any)
   • $3,000 — taxable account minimum investment
   • VIVAX — ticker symbol
3. Vanguard Windsor II – Admiral
   • 0.27% — annual management expense ratio including 12b-1 fee (if any)
   • n/a — taxable account minimum investment
   • VWNAX — ticker symbol
4. American Beacon Large Cap Value AMR
   • 0.36% — annual management expense ratio including 12b-1 fee (if any)
   • n/a — taxable account minimum investment
   • AAGAX — ticker symbol
5. Vanguard Windsor II – Investor
   • 0.38% — annual management expense ratio including 12b-1 fee (if any)
   • $10,000 — taxable account minimum investment
   • VWNFX — ticker symbol
6. Fidelity Large Cap Value Enhanced Index
   • 0.45% — annual management expense ratio including 12b-1 fee (if any)
   • n/a — taxable account minimum investment
   • FLVEX — ticker symbol
7. Dodge & Cox Stock Fund
   • 0.52% — annual management expense ratio including 12b-1 fee (if any)
   • $1,000 — taxable account minimum investment
   • DODGX — ticker symbol
8. Invesco Van Kampen Growth and Income Y
   • 0.63% — annual management expense ratio including 12b-1 fee (if any)
   • $250 — taxable account minimum investment
   • ACGMX — ticker symbol
9. Invesco Van Kampen Comstock Y
   • 0.64% — annual management expense ratio including 12b-1 fee (if any)
   • $250 — taxable account minimum investment
   • ACSDX — ticker symbol
10. Invesco Large Cap Relative Value Y
    • 0.69% — annual management expense ratio including 12b-1 fee (if any)
    • $250 — taxable account minimum investment
    • MSIVX — ticker symbol

Best large cap value mutual funds with much lower investment expenses

Lower cost investment funds tend to do a superior job of serving the financial interests of investors. More costly investment firm funds cut into mutual fund performance returns, because these higher costs continually pull on average investors’ handbags and wallets year after year.

This listing of minimum cost top 10 large cap value funds is ranked with the lowest cost investment funds first. Nevertheless, all of these value investment funds have relatively low costs. See the notes below to learn more how the list was determined.

Value mutual funds will usually not track broad stock market performance closely and, instead, will tend to move contrary to the overall market sometimes. However, the financial research literature indicates that is you are going to chose between a large cap growth mutual fund versus a value mutual fund “tilt” to a stock portfolio, at least, historically a “value tilt” has achieved better cumulative long-term performance.

While the lower cost funds on this list tend to have quite low turnover, their turnover and trading costs will be higher than a fully passive Top 10 S&P 500 index fund that targets a broadly diversified US stock market index return. So pay attention to turnover in addition to all other factors that are relevant to you.

Notes about how this no sales charge investing funds list has been formulated.

Lists of very low cost investment funds usually are relatively unchanging and stable across time. The rationale is very understandable and straightforward. When an investment fund family competes with very low cost investment funds rather than with more risky and more costly tactically active trading strategies, then that investment fund firm strategically usually intends to keep competing on lowest cost investment funds. When that investment fund firm markets passively managed, low fee, and low turnover index funds, that company most often will continue offering similar products.

However, information on this listing of much lower cost investment company funds could have become different after this investment summary was edited, and it is your personal responsibility to check any data and information, prior to making any kind of financial decision.

These are our mechanical database selection processes that were used to develop this list of these very low cost investment firm funds:

• DATABASE SELECTION PROCESSES: Our mechanical data base selection processes were employed on large investment fund databases which were thought to encompass essentially all of available investing funds.
• SELECTING LOW COST NO LOAD INVESTING FUNDS IS THE PRIMARY OBJECTIVE: The main objective was to identify very low cost no sales load investing funds. This listing of these very low cost no load investment funds was selected to try to exclude those investment company funds assessing sales fees which are either front-end loads, level loads, or back-end sales loads. This investment fund listing also has attempted to remove those investing funds which assess 12b-1 sales fees, although these 12b1 fees sometimes can be hard to determine.
• SCREENED INVESTMENT FUNDS OFTEN ARE PASSIVE INDEX INVESTMENT FUNDS: Because low cost noload investment funds usually are passive index funds, they also usually have far lower securities portfolio turnover versus the higher securities portfolio turnover characterized by non-index tracking, tactically active funds. Lesser asset turnover is correlated with lesser asset brokerage and trading fees and costs. Screened funds are very often passively managed index tracker funds, as such much lower cost investing structures are unable to fund such more risky and more costly active investment strategies.
• FUND PERFORMANCE HISTORY TENDS TO BE MUCH LESS RELIABLE THAN SELECTING LOWER COST NOLOAD INVESTOR FUNDS: Regarding ETFs and investment fund performance, too many amateur individual investors follow fund performance history hoping to find the top performing mutual funds in the future. Doing this tends to be an inferior strategy, because fund performance history is much less useful than picking low cost no sales charge index investment firm funds that are characterized by low fees, low turnover, and passive management.
• LOW COSTS ARE WHY YOUR PORTFOLIO CAN EARN ENHANCED INVESTMENT FUND PERFORMANCE: If you buy very low cost no load index investment company funds, their innately low costs are the fundamental reason why your investments can obtain higher level index fund performance and ETF exchange traded securities performance yields. When you purchase lowest cost index investor funds, then expect to obtain ETF exchange traded products and mutual fund returns that track the underlying diversified index minus the lower costs you need to pay and a relatively small error in tracking the index.
• TOTAL ASSET VALUE AND INVESTMENT FUND AGE: Regarding the total assets of these lowest cost investment funds and time that they have been in existance, most hold a minimum of a hundred million dollars of total invested assets and have been operating a minimum of three years.
• AVAILABLE TO ADDITIONAL INVESTMENT ASSETS: Most of these much lower cost investing funds were open for additional money at the time of writing. These investor funds might be accessible to investors either via directly bought funds, though low cost stock brokers, or solely via an institutional plan open to particular investors. Probably the better method to find out about how to invest in any of these low cost investing funds is to perform a search using your favorite search engine with the investment fund name and investment fund ticker symbol.
• ZERO DUE DILIGENCE, EVALUATION, OR ANALYSIS: Solely numerical data base selection processes were employed. Absolutely No due diligence, evaluation, or analysis of any kind was performed with any of the investor funds.

Statistical securities investing research reports compellingly prove that lesser cost investment expenses are strongly contributory toward higher level investment fund plus ETF exchange traded products performance yields. The financial asset trading marketplace isn’t a safe place for the average investor to attempt to get better returns with more active but necessarily more expensive investing stratagems which usually will lead to inferior returns.

As a matter of fact pro active asset managers usually won’t get better returns once their greater investment fund management expenses, higher trading expenses, plus higher investment taxes are calculated. The greater the investment firm management expenses, trading fees, and investment taxes, the lesser the net investment performance returns to investors. Investment fund asset managers can’t capture sufficiently high performance returns to counterbalance their increased management fees, brokerage costs, and taxes. Intrinsically, these increased and unwarranted investment management expense ratios, brokerage costs, and trading taxes make ordinary investors receive poorer real investment returns. Ordinary investors spend more and take home less.

To get more financial reports that discuss the increased and unjustified management fees, brokerage sales fees, and trading taxes associated with investment funds read these investing research studies:

• No Load Mutual Funds addresses 7 important elements that may aid individual investors with selecting the top noload mutual funds plus exchange traded products or ETFs.
• Also, to find least expensive S&P 500 funds see: Top 10 S&P 500 mutual funds
• Concerning bond funds performance and management expenses read: Best Fixed Income Funds.

IMPORTANT: Our listing of the investment firm funds has been compiled by using numerical data base screening methods which removed investment company funds which didn’t meet the selection criteria listed previously. Zero analysis, evaluation, or due diligence of any sort has been done on any of the investment funds on this list. Our list of investment firm funds is only for your convenience. This list is NOT a solicitation or offer to sell securities, is NOT an offer of any financial services, and is NOT investment advice. This list may not be complete. There could be errors with this information and data and it could be out of date. Also, there could be errors in or problems with the underlying databases, the automated data base selection methods used, and/or the editing, publication, and transcription. It is entirely and solely your responsibility to verify all and any data and information, before you make any personal financial decision.

This financial summary covers very low cost large cap growth funds. Within this article, we enumerate the 10 best large cap growth mutual fundsthat have lower investment fees compared to the average large cap growth fund. The primary goal for this summary is to identify lowest expense ratio large cap growth funds, since low investment fund costs are very important, if you want to choose from among the top large cap mutual funds. This investment analysis explains why.

Top 10 large cap growth mutual funds with low investment fees

1. Vanguard Growth Index – Admiral
   • 0.14% — annual management expense ratio including 12b-1 fee (if any)
   • n/a — taxable account minimum investment
   • VIGAX — ticker symbol
2. Vanguard Growth Index – Investor
   • 0.28% — annual management expense ratio including 12b-1 fee (if any)
   • $3,000 — taxable account minimum investment
   • VIGRX — ticker symbol
3. Vanguard US Growth – Admiral
   • 0.30% — annual management expense ratio including 12b-1 fee (if any)
   • n/a — taxable account minimum investment
   • VWUAX — ticker symbol
4. Fidelity Large Cap Growth Enhanced Index
   • 0.45% — annual management expense ratio including 12b-1 fee (if any)
   • n/a — taxable account minimum investment
   • FLGEX — ticker symbol
5. Vanguard US Growth – Investor
   • 0.49% — annual management expense ratio including 12b-1 fee (if any)
   • $3,000 — taxable account minimum investment
   • VWUSX — ticker symbol
6. Vanguard Growth Equity
   • 0.51% — annual management expense ratio including 12b-1 fee (if any)
   • $3,000 — taxable account minimum investment
   • VGEQX — ticker symbol
7. American Beacon Large Cap Growth AMR
   • 0.63% — annual management expense ratio including 12b-1 fee (if any)
   • n/a — taxable account minimum investment
   • ALFIX — ticker symbol
8. Harbor Capital Appreciation – Institutional
   • 0.69% — annual management expense ratio including 12b-1 fee (if any)
   • n/a — taxable account minimum investment
   • HACAX — ticker symbol
9. Turner Core Growth – Institutional
   • 0.69% — annual management expense ratio including 12b-1 fee (if any)
   • $100,000 — taxable account minimum investment
   • TTMEX — ticker symbol
10. Invesco Van Kampen Capital Growth Y
    • 0.70% — annual management expense ratio including 12b-1 fee (if any)
    • $250 — taxable account minimum investment
    • ACPDX — ticker symbol

Top 10 large cap growth mutual funds with lowest investment fund management expense ratios

Least costly investment firm funds typically do a more reliable job of delivering superior net investment performance to the average investor. Greater cost investment company funds reduce ETF (exchange traded fund) and mutual fund return performance, because their higher fees continually yank on average investors’ purses.

This list of very low expense ratio large cap growth mutual funds has been arranged with the least expensive investment company funds at the beginning. However, every one of these investment company funds is one of the less expensive mutual funds in this category. Check out the remarks at the bottom to see how the list was developed.

Be aware that growth mutual funds will usually not track passive market index fund performance. Instead, growth mutual funds will tend to amplify positive performance in up markets and magnify negative fund returns in downward markets. While the lower cost funds on this list tend to have quite low turnover, their turnover and associated trading costs will be higher than a fully passive S and P no load index fund that targets a broadly diversified US stock market index return. In fact, some of the funds on this top 10 growth funds list have greater than 100% annual turnover. Finally, some of these funds might not be available for direct purchase by investors, but may only be accessible to select investors who might, for example, be permitted to invest in them via a retirement plan that offers them.

Something else worth noting concerns the choice between a low cost large cap top 10 growth mutual fund versus a large cap top 10 value fund with similarly low costs. While growth funds tend to amplify market movements, value funds tend to move somewhat counter to market movements. The long-term mutual fund performance history gives the edge to a low cost large cap value fund, but you need to be able to stomach a contrarian investment strategy. When others are bragging at cocktail parties about their wizardry (really far more likely just dumb luck) in an upward trending stock market, you are likely to have to hold your tongue. And when the markets are down, the cocktail crowd will still be unlikely to want to hear about your good fortune, if their stock fund portfolios are down.

Remarks about how this no load investment funds listing has been constructed.

Lists of very low cost investment funds tend to be quite stable across periods of time. The reasons are very understandable and simple. When an investment fund firm competes strategically with lowest cost investor funds rather than with more costly actively managed investing ploys, then that investment company usually tends to continue on very low cost investing funds. When that investment fund company provides low fee, low turnover, and passively managed investment funds, it usually tends to keep marketing the same.

However, info about this list of low cost investor funds could have altered after this investing analysis was written and edited, and it is your personal responsibility to check any information and data, before you make any kind of financial decision.

Here are our mechanical database selection methods used to develop this listing of these low cost investor funds:

• DATA BASE SELECTION PROCESSES: The automated database selection processes were employed on large scale investment fund datasets which were thought to encompass almost the universe of investable investment company funds.
• SELECTING VERY LOW COST NOLOAD INVESTMENT FUNDS IS OUR MAIN GOAL: The primary objective has been to select lower cost no load investment funds. Our list of these lowest cost noload investment firm funds was selected to try to remove those investment firm funds charging investment loads that would be either level loads, front-end loads, or back-end sales loads. This investment company fund list additionally has attempted to identify and remove those investment company funds which assess 12b1 fees, although such 12b-1 sales fees sometimes may be difficult to determine.
• LISTED FUNDS TEND TO BE MORE PASSIVE INDEX TRACKING INVESTING FUNDS: Because lower cost noload investment company funds usually are index tracking investing funds, in addition, they tend to have lesser securities portfolio turnover versus the higher asset portfolio turnover of non-index, actively managed investor funds. Far lower asset turnover tends to be correlated with lower asset trading and brokerage expenses and costs. Thus, screened funds most often are passively managed index investor funds, as these very low cost investing models cannot support such more costly and more risky active trading ploys.
• FUND PERFORMANCE RATING DATA IS LIKELY TO BE FAR LESS USEFUL THAN PICKING VERY LOW COST NO SALES LOAD INVESTMENT FIRM FUNDS: Regarding exchange traded funds (ETF) and mutual funds performance, many naive investors first look at historical mutual fund returns trying to select the best performing mutual funds for the future. Doing this is likely to be a foolish strategy, since historical mutual fund return data tends to be much less reliable than picking much lower cost no load index investing funds with passive management, low turnover, and low fees.
• LOW COSTS ARE THE FUNDAMENTAL REASON WHY YOUR PORTFOLIO CAN EARN ENHANCED INDEX FUND PERFORMANCE: When you invest in much lower cost noload index investing funds, their fundamentally lower costs are the fundamental reason why your portfolio can earn higher level mutual fund returns and ETF exchange traded products performance returns. When you purchase much lower cost index investor funds, then expect to get exchange traded funds (ETF) and mutual fund performance returns that target the underlying index less the much lower costs you pay and a relatively small error in tracking the index.
• TOTAL INVESTED ASSETS PLUS FUND AGE: Regarding the total assets of these low cost investment funds and time that they have existed, the vast majority hold at least a hundred million of total asset value and have been operating for at least three years.
• AVAILABLE FOR NEW MONEY: Most of these low cost investing funds were open to new investor assets at the time of publication. These investment funds could be available for ordinary investors either via direct purchases, via lower cost stock brokers, or only via some institutional arrangement for particular participants. Usually the better method to find out about how to invest in these lowest cost investor funds would be to do a search using your favorite search engine using the investment firm name or ticker symbol.
• ZERO DUE DILIGENCE, EVALUATION, OR ANALYSIS: Exclusively, mechanical database selection processes were used. Absolutely No analysis, evaluation, or due diligence of any sort was performed with any of these investor funds.

Scholarly securities investment research studies consistently establish that least cost investment fund management expenses tend to yield higher level investment fund plus exchange traded fund (ETF) performance. The asset securities investment market place is no safe place for investors to endeavor to beat the market by tactically active but necessarily costly investing ploys which usually will fail.

Perhaps surprisingly, even pro active asset managers on average don’t do better than the market once their higher investment firm management expense ratios, greater trading costs, and higher short-term capital gains taxes are considered. The greater the investment management fees, trading expenses, and investment taxes, the lower the actual securities investment performance for average investors. Investment money managers cannot earn sufficiently high performance to offset their higher management expense ratios, brokerage expenses, and trading taxes. As such, these increased and uncompensated investment company management fees, trading costs, and investment taxes make average investors get lesser real investment returns. Average investors spend more and take home less.

To find more investing research reports that discuss the heavy and unjustified management fees, brokerage sales expenses, plus trading taxes associated with investment companies look at these investment articles:

• Best NoLoad Mutual Funds covers 7 key points that can help individual investors with distinguishing the best mutual funds and ETFs.
• Additionally, for least costly S and P 500 index funds look at: Best S and P 500 index funds
• Related to bond mutual fund fees look at: Best Fixed Income Mutual Funds.

IMPORTANT NOTICE: This listing of the investor funds was compiled using numerical database screening methods that removed investing funds which didn’t meet the screening criteria listed previously. Zero due diligence, evaluation, or analysis of any kind has been performed on any of these investment funds listed here. This list of investor funds is solely for your information. Our list is NOT investment advice, is NOT a solicitation or offer to sell securities, and is NOT an offer of any financial services. Our list might not be complete. There could be errors with this data and information and it could be out dated. Also, there could be errors in or problems with the underlying databases, the automated data base selection methods that were used, and/or the editing, transcription, and publication. It is solely and entirely your responsibility to check any and all information and data, prior to making any kind of financial decision.

This investment report discusses lowest cost S&P 500 large cap core index mutual funds. In this summary, we consider the top 10 S&P 500 mutual funds that have lowest investment costs compared to the typical large cap core mutual fund.

The primary goal of this article is to list very low cost S&P 500 no load mutual funds, since the lowest investment management expenses are most important, if you want to choose the top S&P 500 index funds. This financial summary will also explain the reasons.

Top 10 S&P 500 index funds with very low investment management expenses

1. Fidelity Spartan S&P 500 Advantage
   • 0.07% — annual management expense ratio including 12b-1 fee (if any)
   • $100,000 — taxable account minimum investment
   • FUSVX — ticker symbol
2. Vanguard 500 Index – Admiral
   • 0.07% — annual management expense ratio including 12b-1 fee (if any)
   • $100,000 — taxable account minimum investment
   • VFIAX — ticker symbol
3. Vanguard 500 Index – Signal
   • 0.07% — annual management expense ratio including 12b-1 fee (if any)
   • $1,000,000 — taxable account minimum investment
   • VIFSX — ticker symbol
4. USAA S&P 500 Index Reward
   • 0.09% — annual management expense ratio including 12b-1 fee (if any)
   • $100,000 — taxable account minimum investment
   • USPRX — ticker symbol
5. Schwab S&P 500 Index
   • 0.13% — annual management expense ratio including 12b-1 fee (if any)
   • $100 — taxable account minimum investment
   • SWPPX — ticker symbol
6. Columbia Large Cap Index – Z
   • 0.14% — annual management expense ratio including 12b-1 fee (if any)
   • $2,500 — taxable account minimum investment
   • NINDX — ticker symbol
7. Vanguard 500 Index – Investor
   • 0.18% — annual management expense ratio including 12b-1 fee (if any)
   • $3,000 — taxable account minimum investment
   • VFINX — ticker symbol
8. Dreyfus BASIC S&P 500
   • 0.20% — annual management expense ratio including 12b-1 fee (if any)
   • $10,000 — taxable account minimum investment
   • DSPIX — ticker symbol
9. DWS Equity 500 Index – S
   • 0.21% — annual management expense ratio including 12b-1 fee (if any)
   • $2,500 — taxable account minimum investment
   • BTIEX — ticker symbol
10. USAA S&P 500 Index – Member
    • 0.25% — annual management expense ratio including 12b-1 fee (if any)
    • $3,000 — taxable account minimum investment
    • USSPX — ticker symbol

Top 10 S&P 500 index funds that have the lowest no load index fund expenses

Lowest cost investing funds typically do a superior job of serving the financial interests of investors. More costly investment company funds shrink ETF and index fund performance by continually yanking on the average investor’s pocketbook.

This table of lower cost top 10 S&P 500 mutual funds has been organized with the lowest cost index fund first. Nevertheless, each of these index funds is among the least costly on the market. These S and P 500 index funds are also managed to minimize operating costs and have very low rates of portfolio turnover. Most have over a billion dollars of invested assets, and some hold tens of billions of dollars of net asset value. Also, study the notes underneath to see how the listing was developed.

Remarks on how this no sales load investment company funds listing has been developed.

Lists of very low cost investment funds tend to be very stable across time. The reasons are quite understandable and simple. When an investment fund company decides to compete with much lower cost investing funds rather than with higher cost actively managed investing stratagems, then that investment fund company will usually keep competing on much lower cost investor funds. When that investment fund firm sells low turnover, low fee, and passively managed investor funds, that company usually tends to continue selling similar products.

However, things concerning our list of much lower cost investment company funds may have become different after this investor article was written, and it is your personal responsibility to verify all information and data, prior to making any kind of financial decision.

Here are the mechanical database screening methods used to derive this listing of these much lower cost investment funds:

• DATABASE SELECTION METHODS: Our automated database screening methods accessed large investment firm fund datasets which were thought to include almost all of investable investment funds.
• SELECTING LOWEST COST NO SALES CHARGE INVESTMENT FIRM FUNDS HAS BEEN OUR MAIN OBJECTIVE: The primary goal has been to find very low cost no sales charge investment company funds. These very low cost noload investing funds was screened to try to cut out all investment firm funds charging sales fees that would be either level loads, back-end loads, or front-end sales loads. Our investment firm fund list additionally has tried to find and remove those investment firm funds that charge 12b1 sales fees, though such 12b1 sales fees sometimes can be hard to detect.
• SCREENED INVESTING FUNDS TYPICALLY ARE PASSIVE INDEX TRACKING INVESTOR FUNDS: Due to the fact that these much lower cost no load investment funds tend to be index investment funds, they also tend to have far lower investment asset turnover when compared to the far higher securities portfolio turnover churning of non-index, actively managed funds. Far lower investment asset turn over tends to be correlated with lesser investment asset brokerage fees and expenses. Screened funds almost invariably are passively managed, passive index tracker investment funds, since such lower cost investment structures are unable to support such more risky and more costly actively managed investment stratagems.
• PAST FUND PERFORMANCE IS MUCH LESS RELIABLE THAN SELECTING LOW COST NOLOAD INVESTMENT FUNDS: Concerning ETF exchange traded products and index fund performance, a lot of naive individual investors rely up mutual fund performance ratings trying to select the top rated mutual funds for the future. This tends to be a fool’s errand, because historical mutual fund return data tends to be far less useful than selecting low cost no load index investment funds with low fees, low turnover, and passive management.
• VERY LOW COSTS ARE THE FUNDAMENTAL REASON WHY YOUR ASSETS CAN OBTAIN ENHANCED INVESTMENT FUND PERFORMANCE: When you invest in lower cost no sales load index investor funds, their innately much lower costs are the fundamental reason why your assets can obtain improved mutual funds performance and ETF performance yields. When you purchase lowest cost index investing funds, then expect to get ETF and investment fund performance outcomes that target the underlying index minus the low costs you pay and a relatively small error in tracking the index.
• TOTAL ASSETS PLUS INVESTOR FUND OPERATING AGE: Regarding the total invested assets of these lowest cost investment funds and the length of time that they have existed, they hold several hundred million dollars of total investment portfolio assets or much more and have been operating a minimum of three years.
• AVAILABLE FOR ADDITIONAL INVESTOR MONEY: Most of these low cost investment company funds were believed to be open to new money when this article was written. These investing funds may be accessible to the average investor either via direct purchases, via low cost stock brokers, or only via an institutional plan for specific investors. Usually the best method to find out about the mechanics of investing in any of these lower cost investment funds is to perform a web search using your favorite search engine using the investment fund name and fund ticker symbol.
• ZERO EVALUATION, ANALYSIS, OR DUE DILIGENCE: Exclusively, numerical data base screening methods were used. No analysis, due diligence, or evaluation of any kind has been done on any of the investment firm funds.

Statistical securities investment research studies strongly point out that lesser cost investment fees tend to yield better investment mutual fund and exchange traded fund (ETF) performance yields. The financial asset investment market place is no safe place for the average investor to endeavor to beat the market by over-active but concommitantly more expensive trading strategies that usually will fall short of a market return.

Perhaps surprisingly, even professional active money managers on the average do not do better than the market after their increased investment company management fees, greater brokerage costs, and higher trading taxes are considered. The more the investment management expense ratios, brokerage expenses, and trading taxes, the poorer the actual investment returns for average investors. Investment fund managers don’t garner sufficiently high returns to counterbalance their greater management expenses, trading costs, and trading taxes. As such, these higher and uncompensated investment management expenses, brokerage fees, and taxes make ordinary investors receive deficient actual securities fund performance. You spend more and hold on to less.

For additional investor articles which report on the increased and unjustified management expense ratios, brokerage house trading expenses, and taxes which are associated with investment companies look for these investor reports:

• Best NoLoad Funds covers various decisive points which may help ordinary investors with finding the top noload mutual funds and exchange traded funds.
• Additionally, to find lowest cost S&P 500 index funds look at: Top S&P 500 mutual funds
• Related to best fixed income fund fees study: Best Bond Funds.

IMPORTANT: This listing of the investment company funds is compiled using mechanical data base selection processes which eliminated investment funds that didn’t meet the selection criteria discussed previously. Zero evaluation, analysis, or due diligence of any kind was done with any of the investment company funds on this list. This list of investor funds is solely for your convenience. This list is NOT a solicitation or offer to sell securities, is NOT an offer of any financial services, and is NOT investment advice. Our list might not be complete. There could be errors with this information and data and it could be out of date. In addition, there might be errors in or problems with the underlying databases, the automated data base selection methods that were used, and/or the editing, publication, and transcription. It is entirely and solely your personal responsibility to verify all and any data and information, before you make any kind of financial decision.

This financial report discusses very low cost large cap core mutual funds. In this article, we enumerate the top ten large cap core mutual funds that have much lower investment fund management expense ratios than the typical large cap core mutual fund.

The key objective of this summary is to list much lower expense ratio large cap core index funds, because lowest investment costs are vital, when you are selecting the best large cap core mutual funds. This investing summary also explains why.

Top large cap core mutual funds with low investment fund management expenses

1. State Farm Growth
   • 0.13% — annual management expense ratio including 12b-1 fee (if any)
   • $250 — taxable account minimum investment
   • STFGX — ticker symbol
2. Bridgeway Blue Chip 35 Index
   • 0.15% — annual management expense ratio including 12b-1 fee (if any)
   • $2,000 — taxable account minimum investment
   • BRLIX — ticker symbol
3. Vanguard Tax-Managed Growth & Income — Admiral
   • 0.15% — annual management expense ratio including 12b-1 fee (if any)
   • $100,000 — taxable account minimum investment
   • VTGLX — ticker symbol
4. GE S&S Program Mutual Fund
   • 0.19% — annual management expense ratio including 12b-1 fee (if any)
   • N/A — taxable account minimum investment
   • GESSX — ticker symbol
5. Vanguard Growth & Income — Admiral
   • 0.21% — annual management expense ratio including 12b-1 fee (if any)
   • $100,000 — taxable account minimum investment
   • VGIAX — ticker symbol
6. Vanguard Tax-Managed Growth & Income
   • 0.21% — annual management expense ratio including 12b-1 fee (if any)
   • $10,000 — taxable account minimum investment
   • VTGIX — ticker symbol
7. Elfun Trusts
   • 0.23% — annual management expense ratio including 12b-1 fee (if any)
   • $500 — taxable account minimum investment
   • ELFNX — ticker symbol
8. Vanguard FTSE Social Index Inv
   • 0.29% — annual management expense ratio including 12b-1 fee (if any)
   • $3,000 — taxable account minimum investment
   • VFTSX — ticker symbol
9. Vanguard Growth & Income
   • 0.35% — annual management expense ratio including 12b-1 fee (if any)
   • $3,000 — taxable account minimum investment
   • VQNPX — ticker symbol
10. Schwab 1000 Index
    • 0.38% — annual management expense ratio including 12b-1 fee (if any)
    • $100 — taxable account minimum investment
    • SNXFX — ticker symbol

Top 10 large cap core mutual funds with lower investment fund management expenses

Lowest cost investment firm funds normally do a more dependable job of serving the financial interests of individual investors. Higher fee investment funds bring down exchange traded fund and mutual fund performance returns by continually pulling on the average investor’s wallets and handbags.

This list of much lower expense ratio and therefore best large cap core mutual funds has been ranked with the least expensive investment company fund first. Nevertheless, every one of these investment firm funds is one of the most low priced of large cap core funds that are not strictly no-load S&P 500 index mutual funds. Yet, pay attention to their levels of turnover and the number of different common stocks that these large cap core mutual funds hold. If you are looking for the very lowest cost S&P 500 index fund, use the Sitemap to find a listing of Top 10 S&P 500 Index Funds, which may have even lower expenses and minimal turnover. Also, you should study the notes underneath that understand how this particular top 10 mutual funds listing has been prepared.

How this noload investing funds listing has been prepared.

Lists of lowest cost investment funds tend to be very stable and unchanging over periods of time. The causes are rather simple and straightforward. If an investment company competes on very low cost investing funds rather than with more risky and more costly tactically active investment systems, then that investment fund firm will usually keep competing on lower cost investor funds. When that investment company sells low fee, passively managed, and low turnover index funds, that company most often will keep marketing the same.

However, info about this list of lowest cost investment funds certainly may have altered after this financial summary was edited and published, and it is your responsibility to check any data and information, prior to making any kind of personal financial decision. There are a variety of sources that you could consult such as Morningstar.com, Yahoo Finance, Google finance, Lipper, or perhaps an advisor such as the Fisher Investments Firm. These entities and others have the data and/or expertise to evaluate these low cost funds and other investment alternatives.

These are our automated data base screening processes that were used to derive our list of these very low cost investment company funds:

• DATABASE SCREENING PROCESSES: The automated database selection methods were performed on large investment fund data sets which should represent almost the universe of available investment funds.
• SELECTING LOWEST COST NO LOAD INVESTMENT FIRM FUNDS IS THE MAIN GOAL: Our primary goal was to select very low cost noload investment company funds. These very low cost noload investment company funds has been screened to try to exclude any investment firm funds charging sales loads which would be either back-end loads, level loads, or front-end sales loads. Our investment company fund list additionally has tried to remove those investment company funds which charge 12b1 fees, although these 12b1 sales fees sometimes may be difficult to determine.
• SELECTED INVESTMENT FUNDS USUALLY ARE PASSIVELY MANAGED INDEX FUNDS: Because lower cost no sales load investment company funds tend to be more passively managed index tracking funds, these funds also most often have far lower securities portfolio turnover churning than the higher asset turnover that characterizes non-index based, active investing funds. Lower asset turnover tends to be associated with lower asset portfolio brokerage and trading expenses and fees. Therefore, screened funds more often are passively managed, index tracker funds, since such very low cost money management models are unable to support more risky and more costly active investing strategies.
• FUND RATING INFORMATION IS LIKELY TO BE FAR LESS RELIABLE THAN SELECTING LOWER COST NO LOAD INVESTOR FUNDS: Concerning ETFs and mutual fund returns, a lot of amateur ordinary investors follow fund performance history trying to select the best mutual funds for the future. Doing this is the errand of a fool, since historical fund performance is far less useful than choosing lower cost no sales load index investment firm funds with passive management, low turnover, and low fees.
• MUCH LOWER COSTS ARE WHY YOUR ASSETS CAN OBTAIN BETTER FUND RETURNS: If you buy very low cost no sales charge index investor funds, their innately low costs are why your assets can yield enhanced mutual funds performance and exchange traded products or ETF performance yields. If you purchase lowest cost index investment funds, then expect to obtain ETF exchange traded products and mutual funds performance results that target the underlying index less the low costs you need to pay and a relatively small error in tracking the index.
• TOTAL INVESTED ASSETS AND INVESTING FUND AGE: Concerning the total asset value of these low cost investment funds and time they have existed, most have a minimum of a hundred million of total invested assets and have existed for at least three years.
• AVAILABLE FOR NEW INVESTOR ASSETS: Most of these lower cost investment company funds were thought to be available to additional investor money when this article was written. These investing funds may be accessible for ordinary investors either though direct purchases, though low cost stock brokers, or solely via an institutional arrangement for specific participants. Usually the best way to find out about the mechanics of investing in these lowest cost investing funds would be to perform a search with your preferred online search facility using the investment firm name or investment fund ticker symbol.
• NO ANALYSIS, EVALUATION, OR DUE DILIGENCE: Solely numerical data set screening processes were employed. Absolutely No evaluation, due diligence, or analysis of any kind was performed on any of these investment company funds.

Scholarly investment research studies systematically point out that lowest cost investment fund fees have a strong positive correlation with better investment fund and ETF exchange traded securities performance returns. The asset securities investing marketplace is no good place for individual investors to endeavor to beat the market with tactically active but inevitably costly investing schemes which most often will fail.

Even professional active money managers usually don’t do better than the market after their higher investment management expenses, higher trading expenses, and increased capital gains taxes are added in. The higher the investing management expenses, trading expenses, and trading taxes, the lesser the net investment returns for the average investor. Investment firm asset managers don’t capture high enough yields to counterbalance the higher management expenses, brokerage fees, and capital gains taxes. Thus, these increased and excessive investment management expenses, brokerage costs, and investment taxes make individual investors get lower actual investment performance returns. You pay more and receive less.

To find additional investing reports that discuss the greater and unwarranted management expense ratios, brokerage firm trading fees, plus taxes that come along with investment funds study these financial research papers:

• Best NoLoad Mutual Funds addresses 7 substantive factors which can aid investors with selecting the best no load mutual funds and ETFs.
• Additionally, for least costly S&P 500 index funds see: Best 10 SP 500 index funds
• Focused on best bond fund management expense ratios study: Best Fixed Income Mutual Funds.

IMPORTANT: Our listing of the investor funds was compiled by using mechanical database screening methods which eliminated investor funds which didn’t meet the screening criteria listed above. Zero evaluation, analysis, or due diligence of any kind has been performed with any of the investment company funds listed here. This listing of investing funds is solely for your information. This list is NOT a solicitation or offer to sell securities, is NOT investment advice, and is NOT an offer of any financial services. This list might not be complete. There could be problems with this information and data and it could be out dated. In addition, there might be problems with or errors in the databases accessed, the mechanical data base selection methods that were used, and/or the publication, editing, and transcription. It is solely and entirely your responsibility to verify any and all information and data, before you make any kind of financial decision.

This two-part article:

1) summarizes a recent research report that compared Vanguard’s passively managed index mutual funds with Vanguard’s actively managed mutual funds (The title of this study by Abel Rodriguez and Edward Tower is “Do Vanguard’s Managed Funds Beat Its Index Funds?” provide links to it below. If you invest in any of Vanguard’s investment fund products, I recommend that you read and understand this study.)

2) discusses an email promotion for an investment newsletter, which claims that it has consistently out-performed and will continue to out-perform Vanguard’s passively managed index mutual funds. (This email solicitation came from Dan Wiener, the editor of The Independent Adviser for Vanguard Investors.)

Use a very low cost, fully passive, and globally diversified investment strategy

Neither this study nor this investment letter email promo has changed my fundamental investment viewpoint, which I summarized in the subheading just above. I strongly advocate to my readers and to financial planning clients that they use an investment fund based strategy that is very low cost, fully passive, and globally diversified. The Rodriguez-Tower study enriched my understanding of Vanguard’s mutual fund offerings and strengthened my convictions. On the contrary, Dan Wiener’s investing newsletter promotion was not terribly enlightening.

Regular readers of my Family Finances articles know that I consistently advocate a very low cost, fully passive, and globally diversified investment strategy for an individual investor’s personal portfolio. Therefore, I will not repeat my reasoning in this article regarding this investment strategy recommendation.

Instead, I will refer you to these articles, which have previously been published on my Family Finance site. In particular, see these articles:

• Cost Control and Investment Performance Improvement articles on The Skilled Investor website,
• Investment Asset Diversification Articles — Reducing Your Portfolio Risk on The Skilled Investor website,
• 7 Ways to Pick the Best Noload Mutual Funds and ETFs on the Best No Load Mutual Funds blog, and
• Your Family Financial Planning – “10 Financial Planning Steps in the Right Direction” on The Pasadena Financial Planner blog.

I am also a regular, avid reader of the Journal of Indexes, which you too can read at IndexUniverse.com. Index Universe is a content rich website for index investors, and the Journal of Indexes is one of the few financial publications that I consider to be “must reads.” In its March/April 2008 issue, which was entitled “Active vs. Passive 2.0,” the Journal published an enlightening article entitled: “Do Vanguard’s Managed Funds Beat Its Index Funds?”

Do Vanguard’s Managed Funds Beat Its Index Funds?

“Do Vanguard’s Managed Funds Beat Its Index Funds?” was co-written by Abel Rodriguez, now Assistant Professor of Statistics at the University of California Santa Cruz and by Edward Tower Professor of Economics at Duke University. Their paper in the Journal of Indexes was based on Abel Rodriguez’s master’s thesis at Duke, which Professor Tower supervised. This investment research journal article was further developed by Rodriguez and Tower, as Rodriguez worked on his PhD in statistics at Duke.

I was particularly interested in this analysis, because of what I might learn about passive index investing and active management comparisons at the portfolio level, which is what counts in personal investment management. More so than any other investment fund company, The Vanguard Group has offered a very wide array of passive index funds for many years. More recently, they have also offered more actively managed mutual funds, albeit still with very low costs. Additionally and more recently, Vanguard has introduced an array of index ETFs. While actively managed, Vanguard’s managed funds have management expense ratios, which are far below averages for other competitive funds in the mutual fund industry.

Active mutual fund managers simply do not earn their management expense ratios and transactions costs

Briefly, the problem with active management is that, while professional investment managers have been show to demonstrate a modest average level of skill (see in particular, research by Wermer, et. al.), unfortunately their management expense ratios are much higher than their apparent skills. On average, the excessive management expenses of active money managers are over double the value of their incremental performance gain. This, of course, wipes out any incremental performance advantage that professional money managers might provide, if direct portfolio management expenses were all that you considered.

Other factors further complicate the active investment fund cost situation. First, except for choosing very low cost funds there is no reliable way to discern beforehand which manager might out perform another to justify his high fee. Second, mutual fund transactions costs roughly are roughly equal an active mutual fund’s management expense ratio. The more active the fund and the higher the turnover, the greater the transactions costs

Excessive costs and the inability to identify reliably supposedly superior money managers before the fact, creates a compelling financial logic for the individual investor. To improve your net investment performance, you are compelled to move to the low cost end of the mutual fund and ETF spectrum. When you do this, you must also more to the completely passive, indexed end of the product spectrum.

In this process, you soon realize that only Vanguard, Fidelity, and a handful of other investment fund companies offer very low cost investment funds. All the rest of the fund families seem to present their clients with a beat-the-market, 4-star and 5-star fund, superior performance hustle. Of course, securities markets are the great levelers. Some funds will win and others will lose. Over time most winners become losers and vice versa. For decades, this game has been is been very good for the shareholders of the mutual fund companies and not so good for shareholder-investors within these actively managed funds.

Vanguard’s Low Cost Index Mutual Funds and Vanguard’s Managed Funds

This “Do Vanguard’s Managed Funds Beat Its Index Funds?” investment research article offered an opportunity to understand in more detail the trade offs between active and passive mutual fund management within the overall Vanguard product family. To summarize the major conclusions of this study very briefly (It is worth you reading it yourself!), the study generally concluded that over the four year 2003 to 2006:

• Vanguard’s passive index funds beat Vanguard’s actively managed funds, when there was a relatively close investment style benchmark between passive and active funds. Rodriguez and Tower said “investors would be well-advised to buy index funds instead of managed funds in situations where those funds closely track their index fund baskets.” (p.31)

• When all passive index funds and actively managed funds were combined into separate portfolios, over these four years, the managed portfolios had “an average out performance of .46%, which was not statistically significant. Much of this differential was explained by the extraordinary performance of the Vanguard International Explorer, Capital Opportunity, and Primecap funds.” (p.29) In essence, this did not prove or disprove the active versus passive question analyzed within the context of Vanguard’s fund offerings. There simply seemed not to be any comparable Vanguard index funds for comparison. Rodriguez and Tower observed that “when managed fund performance is not well explained by a tracking index fund basket, investor may look toward the managed funds.” (p.31)

• Vanguard managed funds were more risky in general, and their managers did not make prescient style adjustments, as market returns for different investment styles (e.g. growth versus value) fluctuated.

• Also, quoting this study, “the managed funds on average have expense ratios that are .26% greater than their corresponding tracking index. They also had turnover rates that are 33% greater than the tracking index.” (p.31) It is critical to realize that Vanguard’s managed funds really are very low cost managed funds. Industry averages for actively managed mutual fund management expense ratios are about twice as high or more. The higher the costs and the greater the turnover, the more ground an expensive, high turnover actively managed mutual fund has to cover just to break even with their lower cost, passive index competitors.

To conclude summary of this investment research paper, I would also like to point the reader to some discussions of this paper on Internet forums. Unlike many discussion forums, which often devolve into unproductive emotionalism and bickering, these forum discussions of this research study really are quite informative.

In addition, Professor Tower has participated in these forums, and he used these discussions as a sounding board for ideas and as a means to clarify certain aspects of this study. I recommend these forum conversations to anyone who has or intends to hold a significant portion of his or her personal investment asset portfolio in Vanguard’s index funds, managed funds, and/or ETFs. Use these links to find these forums:

• Do Vanguard’s Managed Funds Beat Its Index Funds? on the Bogleheads Investment Forum
• Do Vanguard’s Managed Funds Beat Its Index Funds? in several pages (see links to the other pages at bottom of each page) on the Morningstar Vanguard Diehards forum

The historical investment performance record of Dan Wiener’s Growth Portfolio

Along with introductory quotations from Paul Merriman and John C. Bogle, the “Do Vanguard’s Managed Funds Beat Its Index Funds?” investment research paper also included an introductory quotation from Dan Wiener. Dan Wiener publishes and promotes an investing newsletter called The Independent Advisor for Vanguard Investors.

Dan Wiener’s quote in the Rodriguez-Tower paper accused Vanguard of lying to its customers, delivering inferior performance with its index funds, and exposing its fund shareholders to the “worst risks of bear markets.” (p.27) When I first read this research paper, I was curious about why the Rodriguez-Tower investment research study even needed to include these comments by Dan Weiner. Also, I wondered why his comments needed to be so incendiary. However, I did not pay much attention to these statements, because they were largely peripheral to the main analysis of the Rodriguez and Tower study.

Near the conclusion of their investing research paper, Rodriguez and Tower briefly addressed the performance of Dan Wiener’s Growth Portfolio. Apparently, Dan Wiener’s mutual fund newsletter has been a strong advocate of using Vanguard’s managed fund offerings. Furthermore, it seems that his newsletter focuses solely upon investing strategies that can be implemented with Vanguard’s passive index funds, actively managed funds, and ETFs. As I understand it, Dan Wiener’s The Independent Advisor for Vanguard Investors investing strategy newsletter does not provide alternative fund recommendations from any other mutual fund companies.

In their study, Rodriguez and Tower stated that Dan Wiener’s Growth Portfolio had demonstrated performance over the prior nine years that outperformed the Wilshire 5000 index by 5.44% annually. Since January of 1992 or over about 16 years, the Growth Portfolio from this personal investing newsletter apparently had delivered average annual returns that were 2.27% greater than the Wilshire 5000 index. In addition, portfolio risk also seemed to have been lower.

Using The Hulbert Financial Digest and the Wilshire 5000 to benchmark Dan Weiner’s historical Growth Portfolio performance

Dan Weiner’s Growth Portfolio performance was not central to the analysis of the Rodriguez and Tower study. Instead, they briefly commented on it, after they had finished the presentation of their study methodology and results, and they were wrapping up their paper. Rodriguez and Tower used separate data that they obtained from The Hulbert Financial Digest, which is an evaluator of investment newsletter performance.

With The Hulbert Financial Digest data, they commented that the 16 years of 2.27% average out-performance of Dan Weiner’s Growth Portfolio was statistically significant at the 13.4% confidence level using a standard t-statistic test. The t-statistic test is a very limited statistical test, and it is used when there are too few data points to use other more robust statistical tests. The t-statistic test simply measures the likelihood of that the average or mean of one small data set is different than the mean of another data set due to something other than simple randomness.

In essence, a 13.4% confidence level implies that there is about a 1 in 12 chance that the difference was purely random rather than likely being due to some other non-random cause or causes. In this case, the non-random cause could be investment skill, lack of comparability of Dan Wiener’s Growth Portfolio and the Wilshire 5000, and/or some other controllable or uncontrollable influence. A t-statistic test makes no judgment about the magnitude or cause of any differences. A t-statistic test compares the averages sparse data sets. A t-statistic test is historical in nature and not predictive.

Someone might be tempted to construe this 13.4% statistical confidence level as evidence of investment skill on the part of Dan Weiner. However, it is also important to point out that standards of statistical proof in investment, economics, and other social sciences research papers almost invariably require a 5% (a 1 in 20 chance) or even 1% (a 1 in 100 chance) confidence interval. In thirty years of reading statistical research papers, I have never seen a peer-reviewed statistical research paper where the author considered that a statistical hypothesis had been proven, when the data did not achieve even a 10% confidence level (or a 1 in 10).

Finally, given the core findings of the Rodriguez-Tower study and Dan Weiner’s apparent Growth Portfolio results, it is interesting to speculate about the source of any out-performance. Since Rodriguez and Tower gave the advantage to Vanguard’s lower cost passive index funds when a more expensive index fund more closely tracked the benchmark, out performance would likely come from another source. One candidate explanation would be to weigh heavily higher growth funds that lacked a passive index counterpart, such as Vanguard Capital Opportunity, International Explorer, and Primecap. Another would be to question whether the Wilshire 5000 was an appropriate benchmark, especially if the source some of these apparently superior returns was international.

I do not know the answer, because the Rodriguez-Tower study only took a cursory look at Dan Weiner’s Growth Portfolio results. Nevertheless, findings of the Rodriguez-Tower study Dan Weiner’s Growth Portfolio results remain anomalous. There seems to be some skill or luck and/or some inappropriate benchmarking going on someplace.

Superior investment performance results, investment costs, taxes, and selective marketing

Despite the previous discussion, let us be gracious and assume that the Dan Wiener finance newsletter performance data are accurate and furthermore let us also assume that that the Wilshire 5000 is an appropriate benchmark for a Growth Stock index. Granting this, then a 2.27% average annual incremental advantage – skill based or luck based – would yield about 43% more in gross assets over 16 years, if the baseline index did not grow over this period. (This ratio would shrink slightly depending upon the growth rate of the benchmark index. If the benchmark index grows 10% annually, then 2.27% incremental growth or 12.27% total annual growth yields a 39% advantage.)

However, since this performance advantage comparison is made with an index without management expenses or taxes. Therefore, the percentage performance advantage above would need to be reduced to the extent that investment expenses and investment taxes were incurred. Therefore, the supposedly superior, skill based performance results of Dan Wiener’s investment letter’s Growth Portfolio may not be all that they might seem.

In addition, the securities and financial services industry has turned selling of superior performance and a “beat the market” strategy into an art form. Unfortunately, millions of individual investors fall into the financial industry’s “we will do better for you” trap. So very few individual investors track carefully their actual results over the long term to see how well or poorly they actually have done relative to a broadly diversified, very low cost, passive index investment strategy. (See: What is the cost to individual investors of sub-optimal portfolio diversification? on The Skilled Investor website.)

One of the tactics employed by financial promoters is to selectively market only those financial products that have demonstrated supposedly superior performance, while downplaying their mediocre funds and sweeping their laggards under the rug. Instead of providing more details about the marketing games here, instead, I will refer you to some articles on our sister website. See these articles and use the links within them to find more articles that discuss selective investment fund marketing and investment luck versus skill:

• How Morningstar Ratings for mutual funds are used as a marketing tool on The Skilled Investor
• Investment Luck versus Investing Skill articles on The Skilled Investor

In the case of Dan Weiner’s Growth Portfolio historical out-performance of the Wilshire 5000 index, there might be a bit of selective marketing going on here. Dan Weiner also has three other portfolios that he promotes in his investment newsletter, “The Independent Advisor for Vanguard Investors.” The Hulbert Financial Digest analyzes investment newsletters, and it tracks the performance of Dan Weiner’s four portfolios. The Hulbert Financial Digest analyzed Dan Wiener’s four investing newsletter portfolios with the portfolios of other investor newletters.

In footnote #15 of their study, Rodriguez and Tower commented on information this information from The Hulbert Financial Digest, saying “Wiener’s Growth Portfolio performed better over the 10 years ending December 2006 on both a risk-adjusted and a non-risk-adjusted basis, that his other three portfolios. The odds that one of his portfolios would perform well due to luck are greater than the odds that one particular portfolio will perform well, so arguably our 13.4% figure in the text overstates his portfolio-picking prowess. The March 2007 edition of The Hulbert Financial Digest lists the Wiener newsletter as fifth out of 24 mutual fund newsletters on the basis of total return and tenth out of 24 on the basis of risk adjusted return.” (p.58)

Does Vanguard discriminate against its passive index fund investors, Dan Weiner suggested? Rodriguez and Tower also addressed Dan Weiner’s accusation that Vanguard in some way discriminated against its managed fund customers to favor its index fund clients. Rodriquez and Tower analyzed this and found no data to support this charge.

Finally, Rodriguez and Tower looked at Dan Weiner’s early 2007 buy, hold, and sell recommendations. They said that “we find those managed funds that he (Weiner) rates buy, hold, and sell have average geometric alphas [presumably skill based performance differences] for the four year period of +1.39 percent, -0.83 percent, and -1.66 percent per year, respectively. Thus, his recommendations are consistent with our alphas.”(p.34) Also, given these numbers, it would seem that Dan Weiner’s recommendations could be consistent with trend extrapolation. In essence, he recommended managed funds that had out-performed over the four years from 2003 to 2006 and advised against Vanguard managed funds that had underperformed during this same period.

Go to Part 2: Vanguard Mutual Fund Investment Newsletter >>>>>>>

In this second part of this two part article, we:

• discuss an email promoting a mutual fund newsletter that some of my clients forwarded to me,
• attempt to understand certain rather exceptional investment performance claims for this investment letter,
• try to reconcile these performance claims with the research paper about Vanguard’s passive index funds and Vanguard’s actively managed mutual funds that was summarized in Part 1,
• discuss how performance benchmark selection can affect superior performance claims,
• ask whether Vanguard’s index funds are really for suckers, as Dan Wiener suggests, and
• question whether Vanguard has an incentive to deceive its customers.

Dan Wiener’s promotional email for his The Independent Adviser for Vanguard Investors mutual fund newsletter

When I first read the Rodriguez and Tower “Do Vanguard’s Managed Funds Beat Its Index Funds?” mutual fund investment research study that was summarized in Part 1, I did not pay very much attention to the few bits about Dan Wiener’s Growth Portfolio. Later, some of my financial planning clients forwarded a recent email newsletter promotional piece from Dan Wiener. The more I read of it, the more intrigued I became. Maybe Dan Wiener had some secret sauce to help my clients beat the market using The Vanguard Group’s mutual funds and ETFs.

In his email promoting his finance newsletter, Dan Wiener says that he knows the secrets to unlocking hidden riches from Vanguard investment funds. He said that these are secrets that “Vanguard will never reveal.” His promo email was quite hefty, and it took some time to read and analyze. This mutual fund newsletter promo email came from Dan Wiener’s email address, and Dan Wiener signed this email twice.

After I read Dan Wiener’s email, I went back and reread the “Do Vanguard’s Managed Funds Beat Its Index Funds?” mutual fund investment research study by Abel Rodriguez and Edward Tower. Then, I reread Dan Wiener’s mutual fund newsletter sales piece in finer detail.

Please note that everything I have written here comes just from my reading of the Rodriguez-Tower research paper, from Dan Wiener’s email, and from certain related posts on the Bogleheads and Vanguard Diehards forums (see links at the bottom of this article). I have not done any additional or independent analysis. I may lack information, and I could be wrong in my interpretations.

Nevertheless, when someone asks me to buy a financial product or service that will allegedly help me to improve my investment performance, I want to understand the underlying facts. I simply expect that written investment product sales documents should have reasonable clarity. In my personal opinion, the Rodriguez-Tower research paper does have reasonable clarity, and Dan Wiener’s investment newsletter email promotion does not.

The aggressive selling of a Vanguard mutual fund newsletter

First, let me summarize the type of email that Dan Wiener sent to my clients and perhaps to many more people. Have you ever found yourself on a colorful and extremely loooooooooooong webpage that pounds an emotionally laden sales message over and over and over from many different angles? That is what this promotional html email from Dan Weiner is like. I printed his email to save myself from a lot of scrolling and to take some written notes. When printed, this investing newsletter email promotion was 16 pages long.

A red border surrounds the promotional copy of Dan Wiener’s email about his finance newsletter. As his sales message progresses, you find that you could get not just 1, but 2, 3, 4, and 5 bonus gift books, if you just sign up NOW! Visions of bonus sets of Ginsu knives filled my head. Ron Popiel might smile about this sales pitch, although the subscription cost of this investment letter substantially exceeds the price points of the products that Ronco sold on TV.

Multicolored text in a wide variety of fonts repeatedly urges you to sign up for this investment newsletter. There are no less than 18 hyperlinks and buttons that each will take you to the same ordering page. On that ordering page, you can select a two-year “Best Value” subscription for $189 or a one-year “Great Value” subscription for $99.95.

Now, everybody needs to make a buck somehow. There are families to feed; mortgages to pay; SUVs to fill with $4.00 per gallon gasoline (not me), etc. Furthermore, this kind of very aggressive promotional email may actually be what is really needed to get people to take action and to place an order for one of these investing newsletters. If the long form of this promotional email is what it takes to sell an investment newsletter, then fine. Presumably Dan Wiener uses an opt-in email list and the people he solicits can just delete his message, if they are not interested.

Nevertheless, despite the sales pressure, it seems to me that the content of any promotional email should reasonably and fairly describe the value of the investment product or service being offered. It also seems to me that the quality of such an email promotion for a financial newsletter might also be indicative of the quality of the actual newsletter to which I am so strongly being urged to subscribe.

My clients were confused my Dan Wiener’s pitch. I looked at it to see if I could clear up the confusion. Maybe I did. Maybe I did not. You decide.

Financial nirvana with Vanguard’s managed investment funds versus the Vanguard passive index fund end of days?

Let’s take a look at the content of this promotional email from Dan Wiener. Almost immediately, in the email you are offered a very stark choice, which says “You can a) do nothing and loose 40% of your money in 2008, or b) make 144% more money than the average Vanguard investor.” Aw shucks. Of course, I will take choice “b”. Where can I sign up? With 18 links and buttons for me to get to Dan Weiner’s ordering page, signing up for The Independent Adviser for Vanguard Investors should be a breeze.

However, to say the least, the copyrighting of this aggressive email is not a model of consistency and clarity. Since I have a belief that the accuracy of a financial newsletter’s promotional email might indicate something about the quality of the financial newsletter itself, I dive in to see if I can figure out this email anyway. Perhaps, things will become crystal clear, as I read more.

The good news is that I already have some information as background. I had already read the “Do Vanguard’s Managed Funds Beat Its Index Funds?” mutual fund study by Rodriguez and Tower, which briefly looked at Dan Wiener’s Growth Portfolio results. (See Part 1 of this two-part article.)

Now, let us look more closely at the claim that you will make 144% more in 2008. Let’s assume that the average Vanguard investor gets a real dollar passive broad market equity index return of maybe 5%. (This might seem a bit low, but let us assume that the US stock market glory days of the 1980s and 1990s are past. In addition, let us keep inflation out to the returns so that my “real dollars” will have constant purchasing power.)

Apparently, by following Dan Wiener’s advice I will make 144% more that 5%, which means about 12.2% annually in real dollar terms. Any sensible investor would salivate over this kind of reliable, long-term stock market return. We are talking about an equity return of over 15% annually with inflation included.

This investment performance sounds very good so far. Let’s assume that I can keep getting this extra 144% return year after year. With compounding, after 10 years I will have a portfolio that is about 1.9 times greater than the average Vanguard investor. After 20 years, it would be 3.6 times greater. After 30 years, it would be 6.9 times greater.

With these superior investment returns, all I need is about a $1,400 portfolio, and I will roughly break even on the $100 annual cost of Dan Weiner’s newsletter. With any larger portfolio, Dan Weiner’s great advice will be pure gravy. This sounds like a great bargain. Where can I sign up? Oh, I see the ordering links and buttons. Thank you. Thank you.

What is the source and precision of the out performance of Dan Wiener’s Growth Portfolio?

But, wait. Now, maybe I should not jump into this too fast, although it sounds very, very appealing. I certainly do not want to lose 40% of my money in 2008, and I sure would instead like to make 144% more than the average Vanguard investor. However, I am not sure where either of these “lose 40%” or “make 144% more” numbers comes from, so I keep reading. I will focus on trying to figure out where the “make 144% more” number comes from, because that is the path that I want to take. I wanna be rich. I want my clients to be even richer.

Well, Dan Wiener’s email has a whole bunch of numbers, and he makes a lot of numerical claims. However, these numbers do not always seem to be consistent. Furthermore, his numbers also seem to be inconsistent with The Hulbert Financial Digest data about Dan Weiner’s Growth Portfolio. These Hulbert numbers were discussed at the end of the “Do Vanguard’s Managed Funds Beat Its Index Funds?” mutual fund study by Abel Rodriguez and Edward Tower.

Reading on into this investing newsletter email, however, I do think that I have figured out where the 144% number came from. I could be wrong, because Dan Wiener’s investor newsletter email promo did not come with any explanatory footnotes. However, one of the email’s sidebars makes three statements above a table of numbers, which were: “How Dan’s Vanguard Midas Touch Has Made His Subscribers Rich,” VANGUARD MADE BETTER!,” and ‘You Can Easily Make 144% More Money This Year.” In that sidebar, Dan Wiener’s investment newsletter promo presents two columns of annual numbers starting in 1991 and going through 2007 for a period of 16 years apparently.

The first column is for the “Average Vanguard Investor” who starts with $100,000 and ends up with $409,061 in 2007. The second column is for “Dan’s Growth Model Portfolio” which also starts at $100,000 and ends up at $996,083 in 2007. Just below these numbers it says “% Advantage 144%; Extra Profit: $587,022″ and just below that there is an ordering hyperlink that says: “Members of Dan Wiener’s service are nine times richer than the average Vanguard investor. Join Dan today.”

Now, unfortunately, I am even more confused. The email said that I could make 144% more than the average Vanguard investor in 2008. Yet, instead, that 144% number appears to be a comparison of cumulative assets after 16 years of compounding. Furthermore, the ordering link says that “Members of Dan Wiener’s service are nine times richer than the average Vanguard investor. Join Dan today.” But the text just above says they have 144% more. You might appreciate why I am starting to have some questions about the precision of the numbers in Dan Wiener’s email.

Gosh, if there is a seeming lack of precision in the investment performance numbers he promotes, then how can I reasonably expect that there will be a high degree of precision is the development of Dan Weiner’s portfolios and newsletters? Things like this just make me nervous. I prefer precise accounting and detailed performance evaluations.

Maybe it is just me, but there has been too much loosey-goosey accounting going on in the investment world recently. Worldcom, Enron, Tyco, and the others went down or under, and their accounting numbers were not completely transparent. I also remember something about the Beardstown Ladies investment club ten or so years ago. They reported substantial market out performance over the years, and they wrote some best selling books. Unfortunately, upon closer examination it seems that they had some trouble doing proper performance accounting, and they actually trailed the S&P 500 by several percent annually for over a decade.

Investment performance discrepancies between Dan Wiener’s mutual fund newsletter promo and the Rodriguez-Tower “Do Vanguard’s Managed Funds Beat Its Index Funds?” mutual fund study

Be “nine times richer than the average Vanguard Investor” in 16 years? “Make 144% more money than you did in 2007?” Have a 144% “advantage” over Vanguard S&P500 index investors, after 16 years? “Lose 40% of your money in 2008.” Well, Dan Wiener’s investment newsletter email promo has not yet cleared things up for me. Perhaps the Rodriguez-Tower study can help me to understand which of these numerical claims might be correct.

Unfortunately, even less clarity emerges. Using data from The Hulbert Financial Digest the Rodriguez-Tower study concluded that Dan Wiener’s 16 year historical Growth Portfolio results provided an average annual excess return of 2.27%, when benchmarked with the broadest US stock market index. Calculated using average annual returns, the cumulative value of this incremental return over 16 years is in the 40% range plus or minus several percent. (The cumulative comparison would depend somewhat on the baseline growth rate.) (Also, just to remind you, 40% is over 100 percentage points lower than Dan Weiner’s claim of making 144% more. Somewhere between Dan Weiner’s numbers and The Hulbert Financial Digest numbers quoted in the Rodriguez-Tower study, we fell off of a pretty big performance cliff!)

In Part 1 of this two-part article, we accepted the possibility of a 2.27% skill based excess performance for Dan Wiener’s Growth Portfolio, when it was compared to the Wilshire 5000 US stock market index. We did not discuss the perhaps reasonable observation that Dan Wiener’s historical Growth Portfolio results might better be compared to a growth stock benchmark. (The technique of using best-fit benchmarking to discern whether investment results are likely to be due to investment fund manager skill versus variations has become widespread in the investment research literature. Rodriguez and Tower apply this technique in the body of their “Do Vanguard’s Managed Funds Beat Its Index Funds?” investment research paper.)

Benchmark, benchmark, who has an appropriate performance benchmark?

Despite having ignored this potential benchmarking problem thus far, Dan Wiener’s aggressive email pitch for his investor newsletter resurrects this topic. In his email, Dan Wiener goes on for a few pages about how Vanguard apparently mistreats its passive index fund clients. Here are various quotes: “Indexing Is (How Can I Say This Nicely?) for … Suckers. Maybe that’s a bit harsh.” [His words are in red lettering, and this is his punctuation.] “If all but the 50 largest stocks continue to gain over the next 15 years, you’d continue to lose money the whole time.” “Index funds are, once again this year, set to dip, then dive.” These statements are followed by a lot of worrisome statements about high-risk growth stocks, high P/E stocks, index dogs, and so on.

Well, maybe the Wilshire 5000 then is not the appropriate benchmark for analyzing Dan Wiener’s historical performance record after all. Maybe the results should be benchmarked against other growth funds of similar style. Dan Wiener’s email pitch was ambiguous about whether his numerical comparisons were with the S&P 500 or Wilshire 5000 indexes. (My guess is that he was using Vanguard’s S & P 500 index fund.)

In their comparison of Vanguard’s passive index funds and managed mutual funds, Rodriquez and Tower used a refined best fit statistical technique to determine which of Vanguard’s passive index funds and actively managed mutual funds were appropriate to compare. This enabled reasonable apples to apples style comparisons. Dan Wiener’s investment newsletter email seems of offer performance comparisons involving apples, oranges, bananas, grapes, kiwis, etc.

In their remarks about Dan Wiener’s Growth Portfolio, Rodriguez and Tower did not apply the same best find benchmarking methodology. They just used numbers from the The Hulbert Financial Digest, which used the Wilshire 5000 as the benchmark index. Well, the Wilshire 5000 encompasses the S&P500. The S & P 500 captures somewhat more that 70% of total US equity market capitalization and is skewed to include the largest companies in terms of market capitalization. The Wilshire 5000 includes just over 5000 US stocks and encompasses almost 100% of U.S. stock market capitalization measured by trading volume. Neither index is skewed toward a growth investment style. Neither index includes any international equities.

What else might be going on with all these contradictory investment performance numbers regarding the historical performance of Dan Wiener’s investment newsletter Growth Portfolio?

After all these claims and this analysis, I have no way of telling whether Dan Weiner really has any “beat-the-market” or “alpha” skill to offer, or whether his newsletter is or is not valuable.

First, what is really an appropriate performance benchmark for Dan Wiener’s Growth Portfolio over 16 years? Has the investment style been consistent or have there been some investment style changes or style drift? If so, have these changes been prescient or not? What Fama-French multifactor model elements might be at play? He calls this his Growth Portfolio. Is it really? What are the large capitalization versus small capitalization implications? What had the US versus International composition been of this growth portfolio? Has there been any successful or unsuccessful market timing going on? Has there been any successful strategic asset allocation going, i.e. shifting any proportions of the portfolio into and out or cash or fixed income assets in a prescient or not so prescient manner?

Without belaboring the history of investment portfolio theory and the associated academic literature, there is little controversy over the value of portfolio diversification. If we assume that one has established a personally risk appropriate allocation between the major financial asset classes of cash, fixed income, and equity securities, we can look at the internal composition of each of these major asset classes separately.

Now, let us look just at the stocks or equities asset class. While the degree of required equities diversification sometime confuses investors, there is a simple rule to follow. The rule is: diversify globally and completely. If one targets a globally diversified personal portfolio that is reasonably proportionate to the market capitalization across the globe, then the composition of your portfolio and the theoretical sweet spot for portfolio mean variance optimization can be expected roughly to coincide.

Frankly, my guess is that all Dan Wiener’s hype about superior performance has much more to do about global diversification and little to do about superior performance or the generation of excess returns or “alpha.” When appropriately benchmarked, I am guessing that these claims of supposedly superior investment performance would just disappear. Despite all Dan Wiener’s claims to the contrary, there is a reasonable possibility that there might be not any superior performance here at all. This might all be due to a lack of diversification on the part of S&P500 index investors. Comparing the performance of a globally diversified multi-capitalization portfolio to a much less diversified US large capitalization portfolio might look like superior performance, when in fact it is really just a failure to diversify globally.

There are reasonable alternate explanations for this. While I do not have access to composition of Dan Weiner’s Growth Portfolio, there is enough chatter on the Bogleheads and Vanguard Diehards Internet forums to reasonably assume that the Growth Portfolio may have had a reasonably large minority allocation to international equities for an extended period. If this is the case, this might be a diversification issue and have nothing to do with truly superior performance in the sense that one more cleverly picks one stock over another or one investment fund over another.

Dan Wiener’s Growth Portfolio could have been much more globally diversified at a time when US stock index investors were staying too close to home and investing too heavily in large capitalization stocks. If so, then that kind of prescience would deserve some respect.

Performance chasing and active management to beat the market is an overly familiar investment sucker’s game. Globally diversifying and getting there earlier than most other US investors is not. Brag about that, and I would be impressed. Select weakly related performance benchmarks to make your investment performance look stronger, and brag about that supposed excess performance, and I am not impressed.

Investors spend far too much money, time, and effort chasing performance to beat the market. Instead, they would be far better off getting their investment strategy in order at the outset. Let me repeat what I said at the beginning of Part 1: Use a very low cost, fully passive, and globally diversified investment strategy!

Marketing superior performance to the public — where is the sucker?

To summarize, these are my observations about Dan Wiener claims of performance superiority:

A) If Dan Wiener claims a nine-fold advantage, I am sorry, but one should not compare the current asset value of one portfolio to the asset value of another 16 years ago.

B) If Dan Wiener claims a 144% advantage over a very low cost, passively managed S & P 500 index fund, then his competing investment strategy should have been to pick the best S&P 500 firms and avoiding the dogs. If he could beat the S and P 500 head to head over 16 years, then that is really something that he should be proud of. The SPIVA data shows that the longer active funds try beating the passive S&P500 index the more dismal the record of actively managed S&P 500 mutual funds becomes. If he claims a 144% advantage without clarifying that he is using an apples to oranges comparison, then this is not so appealing. If he accuses Vanguard of lying over the matter, then this is far less attractive. Since he is not managing his own mutual funds to produce a 144% advantage, but he apparently is just substituting other Vanguard funds into a portfolio, then it sounds like he is biting the hand that feeds him. In my opinion, that is just rude.

C) If Dan Wiener claims a 16 year 144% performance advantage and then states that two Duke University professors “conclude that my way of investing in Vanguard funds has an 87% probability to continue to outperform index funds for the foreseeable future,” then I seems odd that he does not also mention that that study’s numbers implied a far lesser 16 year “positive alpha “advantage of around 40% or so. Why this 100% percentage point difference? From what I can tell, but cannot be sure of from the confusing information presented in this mutual fund newsletter promo, this may be primarily because the performance comparison was with the S & P 500 versus the Wilshire 5000. Furthermore, he fails to mention that those professors made absolutely no predictive statements. (See below.) Finally, he fails to mention that in footnote 15 Rodriquez and Tower said that any apparent skill level was probably below 87%.

Frankly, this kind of selective marketing of supposedly superior performance to sell investment and other financial products and services is practically an epidemic in the financial services industry. (See for example, “How Morningstar Ratings for mutual funds are used as a marketing tool” on The Skilled Investor website.) Most often such superior performance promotional claims are simply due to market volatility, randomness, and inappropriate performance benchmark marketing. With Dan Wiener’s investor newsletter email, the exact location of the performance benchmarking bull’s eye still remains elusive.

Does The Vanguard Group keep its mutual fund and ETF investors in the dark? Does Vanguard lie to its customers?

Moving on through this investor newsletter email promo from Dan Wiener, we next are told that all we need to do is to sign up for his newsletter and Dan Wiener will “reveal 19 Vanguard secrets” … “Unfortunately, most Vanguard investors won’t have a say in the matter. Vanguard won’t give them or you the choice. They won’t tell you what to do, no matter how bad things get in 2008.”

Now, I do not have much of a clue about what Dan Wiener is talking about. Is he imposing an advisory obligation on Vanguard? While Vanguard more recently has offered some investment advisory services for a fee, Vanguard is a mutual fund company. Like all the rest of the mutual fund industry, Vanguard offers an array of funds to choose from. It has no obligation to tell you which is best or to tell you what to do. You do that yourself or you hire (hopefully an objective) financial advisor or investment counselor to help you.

In a sense, individual investors are lucky that that Vanguard does not make choices for them, given the mutual fund industry’s history of high costs and performance hyping. Vanguard is one of the few companies that refuses to hype 4-star and 5-star funds and use misleading performance graphs in its advertising. (See the bottom of Part 2 of this article: “How to lie with statistics: Investment performance charts” on The Skilled Investor website.)

I probably will never learn the secrets that Dan Wiener knows and that Vanguard is withholding from me. He really lost me when he had some apparent difficulties with consistent math. When he talks about Vanguard’s secrets, is he talking about Vanguard’s managed funds? Vanguard’s ETFs? Mutual funds that Vanguard closed to new investors due to excessive capital inflows? It is all on Vanguard’s websites. Go look. If you want the opinions of other Vanguard investors, take a look at the Bogleheads Investment Forum and Vanguard Diehards forum.

I understand business, economics, and the capitalist system reasonably well. I do not believe much in financial cabals, although concerns about monopolies and oligopolies seem quite real to me. Self interest drives capitalism. However, in a financial industry that often exhibits borderline marketing and sales practices toward individual investors, over the years I have reached the conclusion that Vanguard is one of the good guys. I also reached the conclusion that John C. Bogle is one of the honest men of the industry. Vanguard is out to make a profit — a reasonable profit. That is much more than I can say about many other parts of the financial services industry. (See: “Have You Given Enough to the Financial Services Industry?” on The Skilled Investor’s Personal Finance Blog.)

While much of the rest of the industry is pushing overly costly investment products, Vanguard developed the low cost index mutual fund market and has added managed funds, ETFs, and a variety of other services. More so than other financial services companies, individual investors have to seek out Vanguard’s products, because Vanguard does not fund massive corps of heavily commissioned “producer employees” and third sales “financial advisor” agents like the retail arms of the investment bank wirehouses, insurance companies, and other financial firms do. Very often, supposedly objective financial advisors and investment counselors will not recommend Vanguard’s fund products, because they can make a great deal more money from you by selling you expensive investment products that are good for them, but bad for you. (See: “Pay less to get more” on The Skilled Investor website.)

So when I read an aggressive email promoting an investment newsletter that can’t seem to do math and benchmark comparisons consistently and that feels it is has to disparage the ethics of a company like Vanguard, well then that kind of newsletter marketing message just falls a bit flat for me. If Dan Wiener truly has some skills, at least I would be far more interested in subscribing to his investing newsletter, if he clearly described how his services were complementary to Vanguard’s and were a valuable addition to the already very valuable offerings provided by Vanguard.

The “Do Vanguard’s Managed Funds Beat Its Index Funds?” research paper – a “liberal” interpretation

Weary reader: I promise that I am near the end of this commentary. However there is one more issue that is worth covering. In addition to disparaging Vanguard’s ethics, Dan Wiener seems to a bit of difficulty accurately describing what the Rodriquez-Tower study said.

Quoting from another sidebar in Dan Wiener’s email, Dan Wiener said: “Dan’s strategy is simple, yet powerfully effective. His deep knowledge of Vanguard, his investigative insights, and his investment results prompted two Duke professors to study his methods … under a microscope.” “The study’s conclusion: The probability that [Wiener's] Growth portfolio could have outperformed by such a wide margin because of luck rather than skill is only 13.4%”

Well, first I was unable to find any mention from Rodriguez or Tower that they conducted their study due to Dan Wiener’s “deep knowledge of Vanguard, his investigative insights, and his investment results.” I found nothing in the “Do Vanguard’s Managed Funds Beat Its Index Funds?” research paper that credits him. He was not on the credits for this paper that Professor Tower provided in the forum discussions.

The Rodriguez-Tower investment research paper only briefly looked Dan Weiner’s Growth Portfolio record at the end. Rodriguez and Tower undercut this performance claim through their reference to The Hulbert Financial Digest, ratings of his four funds (See footnote #15 in the Rodriguez-Tower paper.) Furthermore, their analysis discredits Dan Wiener’s claim of Vanguard’s bias and favoritism toward its passive index mutual over its managed mutual funds.

Interestingly, Dan Wiener again seems to treat facts somewhat cavalierly. In the main body of his promotional email text, he says: “Turns out, everyone (except my members and me) is wrong about indexing. The two Duke University professors I referenced earlier conclude that my way of investing in Vanguard funds has an 87% probability to continue to outperform index funds for the foreseeable future.” (Note that the underlining was Dan Wiener’s and not mine.)

Dan Wiener continues, “I already knew this, of course, except for the “87%” figure. I think that number is much higher. Anyway, it’s nice to have a comprehensive study conducted by a major university confirm what members of my service knew the day they joined.”

These statements is stunning to me. Rodriguez and Tower performed a simple statistical test on historical data about the performance record of Dan Weiner’s Growth Porfolio. They made no prediction. Investment studies are always historical and never predictive. The only data available is historical. In general, professors do research, and rarely are they so foolish as to attempt to predict the fundamentally unknowable future. Objective statistical research cannot be predictive, because it simply does not have any data points from the future.

Should I believe Dan Wiener’s superior performance predictions or his small print?

To sell his newsletter, Dan Wiener claims in his email that his special strategy has at least and 87% probability of outperforming Vanguard’s index funds into the foreseeable future. He says directly that the real probability is much higher that 87%. Sounds like money in the bank for his mutual fund newsletter subscribers.

To make this claim, which he underlines in his aggressive email promotional text, Dan Wiener dons the endorsement mantle of two Duke University professors. However, in reality, these professors have undercut his claims, and they have provided no endorsements. Dan Wiener blithely converts what is simply an historical research statistic into a prediction which is supported by Duke University professors. Then, he claims even greater skill than the historical statistics that were reported. Dan Wiener ignores The Hulbert Financial Digest, data completely.

With such an endorsement from Duke University professors and with Dan Wieners prediction that he is almost certain to outperform Vanguards index funds, then maybe I will change my mind and sign up for Dan Wiener’s mutual fund investment newsletter. Therefore, I again click on one of his plentiful ordering links and buttons to get to the ordering page.

As you already understand from this article, I can be a cautious sort of fellow. Therefore, I decide to read the entire ordering page in detail before ordering. At the bottom the order sheet, the small print says “This is a solicitation for The Independent Adviser for Vanguard Investors, a monthly general interest newsletter which is not liable for the suitability or future investment performance of any securities or strategies discussed. Historical investment return examples given are hypothetical, and not to be taken as representative of any individual’s actual trading experience.”

WTF??? Why does the legal small print say quite the opposite of Dan Wiener’s financial newsletter email promo? He says he thinks that his success rate will be “much higher” than the 87% probability of future success that was supposedly bestowed by these two Duke University professors. Which of these two choices should I believe?

Well, I guess that am going to keep my $100. If Dan Wiener a) cannot seem to offer consistent numbers, b) feels the need to bite Vanguard’s hand rather than stand solely on his own merits, c) does not seem to interpret carefully an investment research study that mentions him, and d) contradicts his own performance projections, then maybe I am not really interested in knowing what is inside of his investment letter after all.

Also, I have decided that will also keep my respect for Vanguard. In addition, I will also keep my respect for disciplined academic investment research. It seems to me that I can find a wealth of objectivity about investing in the academic research literature. However, whenever someone in the financial services industry stands to earn a buck off of me or my clients, the facts often very quickly begin to lose their sharpness. The quality of investment information is often very low when it comes from a source that is simultaneously reaching into my wallet or into the wallets of my financial planning clients.

<<<<<< Go to Part 1: Vanguard Index Mutual Funds Versus Vanguard Managed Funds

Bogleheads and Vanguard Diehards forum discussions about Dan Wiener’s mutual fund newsletter

By the way, if you want to read some forum discussions about Dan Wiener’s mutual fund newsletter, here are some links:

• Dan Weiner newsletter on Bogleheads Investment Forum
• The Independent Adviser on Bogleheads Investment Forum
• Ed Tower examines managed funds and Dan Wiener’s portfolios on Bogleheads Investment Forum
• Dan Wiener and FFSA on Morningstar Vanguard Diehards

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The great majority of investors buy funds through advisors and pay a very, very high price over their lives for doing so. You simply do not need to pay hefty sales commissions (loads and higher annual expense ratios) to financial advisers who will only offer to you those funds that will pay them these hefty sales commissions.

When you pay someone’s sales commission who only tells you about expensive mutual funds, you shoot yourself in both feet. First, you pay for inferior inferior advice. Second, you end up living with fund expenses that kill a substantial portion of the growth of your personal investment portfolio.

All mutual fund sales commissions and marketing fees can be avoided entirely by buying from the many mutual fund families that will sell fund shares directly to the public without such fees. ETFs will inevitably involve brokerage commissions, so always use discount brokers. Then, do not trade ETFs. Instead, sit tight with a very long-term buy-and-hold strategy to amortize these exchange-traded fund trading costs.

This investment fund selection criterion is very simple. Zero is the maximum amount of front-end load and back-end load fees that you should to pay. Zero is the maximum marketing or 12b-1 fee you should pay. Just say no.

2) The Best No Load Mutual Funds Have VERY LOW Management Expenses

Lower investment management fees are better. Lowest is best, and the lowest means passively managed index mutual funds and ETFs. Since there are numerous funds with annual expense ratios below .25%, look there first.

The higher the annual fund expense ratio the more you should question why you should pay such higher expenses. Paying more tends to lead to inferior rather than superior performance net of you overall investment costs and capital gains taxes.

3) The Best Noload Mutual Funds Have VERY LOW Portfolio Turnover

Lower portfolio turnover is better. Higher turnover increases hidden fund transactions costs, which tend not to be recouped through better performance. Look for single-digit and very low double-digit annual portfolio turnover rates in the no load index funds and ETFs that you purchase.

4) Avoid Large Actively Managed Mutual Funds

When they trade their overly large portfolio positions, large actively managed funds tend to affect securities market prices negatively. This can only drag down their net fund performance. The more they trade, the worse it tends to get. High trading costs suck value out of the mutual fund portfolio, and these costs are on top of the management fees that you pay directly.

High turnover by large funds should be a big red flag to you. If you avoid actively managed funds altogether, then your concerns about excessive fund size can be greatly reduced. Very large index funds need to manage their trading impact, but their turnover is far lower than actively managed funds.

5) Choose Mature Mutual Funds

The ETF and mutual fund industry throws a whole lot of new fund spaghetti on the wall to see what will stick. IF a new fund has a lucky streak, individual investor assets and “advised” assets come running their way. This is new fund success — at least success for the fund company.

However, when you invest in a very new fund, and it fails to grow, the fund is very likely to die or to be eaten. Rarely do lousy young mutual funds and ETFs fold and refund money. Why confess incompetence and give back assets that could still yield fees?

When new funds do no attract enough assets, these “failed” funds (and your invested and diminished assets) most often will get merged into other funds. Unfortunately, new failed funds tend to get merged into larger funds with noticeably inferior historical performance.

Fund companies do not want to take any of the luster off the of their currently hot funds. Therefore, your money gets tossed into a bigger dog or just average fund. To avoid participating in this frenetic new fund infanticide process, only pick funds that have been in business for at least a few years.

Three years is probably enough. Mutual funds are like dogs in some respects. They grow up in just a few years. However, if they get caught in traffic at the wrong time on “The Street,” they may get run over or be eaten by a bigger dog.

6) Avoid Very Small Mutual Funds

Small funds cannot operate efficiently. They need a minimum critical mass of assets to fund required management expenses. Simply avoid very small funds. One or two hundred million dollars is probably the minimum. A higher minimum would also be fine, since there are still many larger funds to choose from that would meet these other criteria.

7) Screen Out Inferior Mutual Fund Performance

Evaluate the historical investment performance of mutual funds and ETFs, but only AFTER using other screening criteria. Superior or average past fund performance tells you ABSOLUTELY NOTHING about how a fund will perform in the future. Pay attention to the fine print in the prospectus that says that past performance does not indicate future performance, because this has been shown to be true.

Ignore all the fund industry’s selective marketing of only their past winners. Individuals need to move beyond their naive and flawed notions about historical investment performance.

Modern, highly competitive, and real-time securities markets are auction price setting mechanisms that force the mass of smart and not-so-smart professional and amateur investors to accept largely average returns over time. Only very poor past performance tends to indicate potentially sub-par performance in the future, and that is probably due to higher costs. Therefore, eliminate only the worst of historical performance during fund screening and choose from the remainder — despite whether a fund has had superior, average, or even somewhat below average performance in the past.

Net of costs, four and five star funds are no better than three star funds and probably no better than even two star funds. Eliminate the bottom one-tenth to one-third of funds on a historical performance basis and choose from the remaining nine-tenths to two-thirds without stressing their past performance. Instead, choose no load index funds with very low costs and turnover.

Passive, low cost, noload index mutual funds usually have higher risk adjusted performance

If you evaluate the investment research literature, you will find that buying passive, low cost, noload index mutual funds and ETFs are far more likely to lead to higher risk adjusted investment performance over the long run. You can help to break the cycle of frequent fund buying and selling. You can get off the performance chasing hampster wheel that the securities industry wants you to keep running on for your entire life.

Securities sales people and financial advisors get paid more, when you pay more. That is why they shamelessly tell you that you must “pay more to get better performance.” This is complete rubbish. The investment research literature says the opposite. Pay less and get more.

Push the button — get some cheese. Tell naive investors to pay more — get some expensive cheese and some big bonuses. That is why rats and financial sales people keep hitting their buttons. When rats push the button, they get cheese. When financial salesmen push the button, they get paid very well.

Unfortunately, you end up being the one who pays them. If they really understand the investment research literature — and most securities sales people do not — then they just hope that you will never figure it out. Or, you might not realize the problem until years later, when your personal investment portfolio is much smaller than it could have been.

However, if you have already figured out the problem, then these 7 selection criteria offer you a better solution and a relatively easy way to pick the top no load mutual funds and the best mutual funds and ETFs. Become a proactive and extremely cost-conscious consumer of financial and investment products today!

Given the extremely large number and variety of stock – equity, bond – fixed income, and equity mutual funds and ETFs, investors need a rational basis to select among them. For example, there are over 60,000 different mutual fund investment share classes sold worldwide. Some mutual funds and ETFs must be better than others, but which ones are they? How can you tell before the fact?

Without scientific selection criteria and a good understanding of which factors are more or less likely to increase your long-term risk-adjusted investment returns, you will make erroneous decisions based on false assumptions. The most obvious mistake that individuals make is to extrapolate past performance into the future. Superior past performance has simply not been shown to be a reliable predictor of superior future performance.

Low Costs Lead You to the Best No Load Fund

Financial industry sales people and investment advisors promote high cost mutual funds with superior past performance, because they are easier to sell to naive investors. Furthermore, most investment advisors and financial sales people themselves do not know any better. The financial services companies that they work for do not teach them about the findings of the investment research literature.

Instead, they teach their “financial advisors” how to sell investment products quickly — whether or not these investments really are the best mutual funds and ETFs from the point-of-view of their clients. The cycle of performance chasing goes on endlessly. In the process, it damages the long-term financial success of millions upon millions of individual investors around the world.

Mutual fund sales loads and 12b-1 marketing fees reduce your long-term investment performance. These investment sales commissions dramatically reduce the size of your long-term investment portfolio. The true costs of mutual fund sales loads and mutual fund 12b1 fees are far larger that most investors understand. Furthermore, financial advisors and commissioned securities sales people almost always promote mutual funds and ETFs that are more expensive. You pay more to buy these funds and you pay more in the long run, because mutual funds with sales loads and 12b1 fees are more likely to come up short in comparison with low cost no load index funds.

Buy Low Cost No Load Mutual Funds and Hold Them for Years

Investors want to select the best bond and equity mutual funds and ETFs to hold for a long duration. Most would also like to invest additional amounts automatically into these funds over time without worrying about whether they do or do not own the best mutual funds available. Most individual investors do not want to spend their precious personal time constantly figuring out which other mutual funds to switch to. (Note that a minority of investors very actively and repeatedly switch between mutual funds. Dalbar’s studies have show that the long-term performance of frequent switchers is simply terrible, when compared to long-term buy-and-hold investors.)

Also, buy-and-hold mutual fund and ETF investors usually are much less concerned about short-term fluctuations than they are about achieving their longer-term investment capital appreciation goals. Such investors want to use mutual screening or selection criteria to identify the best mutual funds and to minimize the need for frequent changes due to inferior mutual fund performance. Individual investors are better served, if they understand what the scientific investment literature says about potential selection criteria. Therefore, a series of articles the Pasadena Financial Planner discusses fund selection criteria that have a firm basis in scientific investing. Click on the Sitemap link to find them.

If an active fund is too small, then fund securities research, analysis, and management quality can suffer or fees could grow. Passively managed index funds and ETFs do not have the significant overhead that actively managed mutual funds have associated with personnel to evaluate investment alternatives.

Because of their much lower analytical costs, the minimum size of passively managed index funds and ETFs can be far less of an issue, when compared with an actively managed mutual fund. Nevertheless, both actively managed mutual funds and passively managed mutual funds have to cover their marketing, sales, legal, customer service, and other costs – many of which will benefit from the financial economies of scale related to the amount of assets under management.

To amortize the management expense ratio that is necessary to manage properly a mutual fund or ETF each year, a minimum total asset base is required.

To illustrate, an actively managed $100M stock mutual fund with a 1% management expense ratio yields $1 million annually for securities research, analytic expenses, and other fund management costs. In the grand scheme of what it takes to run actively managed mutual funds each year, $1M is just not a lot of money. Therefore, it would be reasonable for you to set your minimum asset selection criteria at several hundred million dollars or even higher for any diversified investment fund — particularly those that are actively managed mutual funds.

If the maximum management expense ratio you are willing to pay each year is lower than 1%, then the required asset base would need to be proportionately higher. If the expenses of a particular “style” of active fund, such as emerging markets stocks, tend to be significantly higher, then you would want an even larger asset base over which to spread securities research and other portfolio management costs.

While the investment research literature indicates that passive index mutual fund strategies lead to better net performance on average, The Pasadena Financial Planner does not expect that actively managed mutual funds will disappear. Therefore, if you still are going to invest in any investment fund and particularly actively managed funds, then you should want them to have a sufficiently large asset base to fund the necessary research and pay all other administrative costs. If a fund is too small, then fund management quality could suffer and/or fees will increase.

However with actively managed mutual funds, the problem is not that there is no “gross” value added. On average, fund management professionals make a modest positive contribution before their expenses. They may be doing so at the expense of amateurs who are poor portfolio self-managers.

One major problem with active professional mutual fund management is that, on average, they charge substantially more than they return in improved performance.

The average active mutual fund management team does not make a sufficiently great incremental performance contribution to overcome their more substantial added costs. Furthermore, there is no reliable way to tell future mutual fund management winners versus losers from among all active professional mutual fund managers. Therefore, in “net” rather than “gross” terms for individual investor portfolios, it is far more likely for active managers to trail rather than exceed a passive market index return.

There are significant differences in costs between actively managed mutual funds and passively managed index funds. By not attempting to beat the market, which most often will meet with failure, no load index funds can dramatically reduce costs and taxes and improve the odds of better net returns. While there are some areas of specialized expertise in index fund management, properly managing an index mutual fund depends largely on having a very efficient trading operation to track the index and an efficient customer service operation.

No load mutual funds and ETFs do not have the significant overhead that actively managed mutual funds do associated with securities research, and therefore, the need for expensive securities research analysts is greatly reduced.

Because of their much lower costs, the minimum size of a passively managed index fund is less of an issue than it is with actively managed mutual funds. Nevertheless, individual investors still need to be concerned about index funds that are too small.

With no load mutual funds, The Pasadena Financial Planner suggests that you screen for no load index funds using the maximum management expense ratio that you will personally willing to tolerate. If no load mutual funds are run efficiently, then their management expense ratios should be very, very low. While there are some ridiculous examples of domestic no load index funds with management expense ratios over 1% annually, even a .25% upper screening limit will give you a wide range of no load index funds from which to choose.

Finally, note also that newly created, actively managed and passively managed funds that are spawned within a larger fund family may benefit for a time from both the fund family’s economies of scale and its subsidies of the management expense ratio. Administrative economies of scale can permit new funds with smaller asset sizes to exist for a longer period.

Very often, fund families will substantially subsidize the management expense ratio of their newer funds. This temporarily reduction of the management expense ratio can have the effect of increasing short-term performance. However, if a new fund does not grow quickly, then it is likely to be shut down or merged into another inferior performing and/or more risky fund within that fund family. Therefore, you should choose mature noload mutual funds instead.