Growth Fund of America Vs. Vanguard Up & Down Markets

If someone told you he was able to get his clients 18.7% a year over the last 20 years would you give him your money to manage?

I hope not! As in this video I show you how people use, “misuse?”, investment models as a way to show their investment performance.

The problem with models is EVERYONE and their mom has a model they can backtest to “prove” anything. As someone once said, if you torture the data enough it will confess to anything.

So tell me…how is YOUR investment model going to generate positive alpha over ALL the other models, algorithms, PhDs, AI, etc.? You think you’ve found the magic solution that NOONE else can exploit?

What happens with investment models is that when they work for a bit they generate excess cash flows. And thus the model loses its ability for future outperformance. And many a money manager is left on the streets without shoes wondering what went wrong. “it always worked before,” they’ll say.

Yup, always does. Until it doesn’t. Just hope you weren’t leveraged when the markets caught up to you, as it certainly will.

Models also never take taxes into consideration. For instance, the guy I hammer in this video he simply says the way to generate excess return is to get out before the markets drop and back in before they go up.

Whoa! Who knew??? But even if you were able to do that, what’s the tax consequence of all that selling?


Yeah, I’m cynical. Been around too long not to be.

Hopefully, my cynicism can rub out on you too so you can protect you assets.

What’s the best way to get good returns??? Shhh…don’t tell this to anyone.

It’s to stay in the market, good times AND bad. Historically, the good times have outweighed the bad and thus you made money. Will that continue? Anyone’s guess.

But the alternative is what??? A 2.84% 10 Year Treasury bond. Oh, and that’s BEFORE tax and inflation. Not going to make much return there.

Does active management earn its fees in down markets?

In this episode we analyze the performance of the Growth Fund of America from American Funds vs. Vanguard S&P 500, Vanguard Total Stock and Small Cap Index.

In up years the SP 500 smoked the Growth Fund. But that’s okay right? After all it’s the down market that active funds outperform.

Nope. Not even close.

Similar down market declines. A whole lot less upside in rising markets for active funds.

Should Growth Fund of America be my proxy? Why not? it was HUGE not too long ago. If memory serves GFA was the largest fund in the world at one point a few years ago.

In the huge decline of 2007-2009, GFA was down 50% as was the index funds. But active management is supposed to keep that from happening.

Not this time.

So, if the Growth Fund of America can’t outperform with it’s low expense ratios and low turnover, what’s the likelihood other funds can???

Hard to see that happening.

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