patrick.net

Have mutual funds ever performed well? There are maybe 3 or 4 people who run mutual funds that I would actually trust.

Some mutual funds can reduce risk of the downside a little bit. The actual return of the indeces is always hard to beat.

Index funds are better than mutual funds, but even the index funds have some overhead.

You can construct your own Dow index fund by buying each of the 30 stocks in the Dow. Maybe you pay $10 for each trade, but if you hold them a while, your total commission cost of $300 will definitely be less than the fund manager would take. Here they are:

By % weight in the index:
1 IBM IBM 10.13
2 CAT Caterpillar 6.68
3 CVX Chevron 6.45
4 MMM 3M 5.77
5 UTX UnitedTechnologies 5.28
6 XOM ExxonMobil 5.18
7 BA Boeing 4.66
8 MCD McDonalds 4.63
9 KO Coca-Cola 4.00
10 JNJ Johnson&Johnson 3.88
11 PG Procter&Gamble 3.82
12 TRV Travelers 3.74
13 DD Dupont 3.37
14 WMT WalMart 3.24
15 AXP AmericanExpress 2.88
16 JPM JPMorganChase 2.72
17 DIS Disney 2.55
18 HPQ HewlettPackard 2.40
19 VZ VerizonCommunications 2.27
20 HD HomeDepot 2.22
21 MRK Merck 2.12
22 KFT KraftFoods 1.99
23 T AT&T 1.86
24 MSFT Microsoft 1.58
25 INTC Intel 1.35
26 PFE Pfizer 1.24
27 GE GeneralElectric 1.22
28 CSCO CiscoSystems 1.03
29 AA Alcoa 1.01
30 BAC BankofAmerica 0.74

Or take a look at the ETFs - DIA & SPY:

http://finance.yahoo.com/q/pr?s=DIA+Profile (Annual report expense ratio — 0.18%)
http://finance.yahoo.com/q/pr?s=SPY+Profile (Annual report expense ratio — 0.09%)

This is absolutely true. I have read many books showing the same thing based on statistical research. A mutual fund usually statistically equals index funds in terms of performance. The tie-breaker is the upfront commission and maintenance of index funds are lower.

Also, poor performing mutual funds are closed out by the brokerage firms. This creates the illusion that most mutual funds in a particular brokerage firm are good.

The Dow Jones average actually plays tricks like that too. When I stock is doing very badly, they may just remove it and replace it with a stronger stock.

You can construct your own Dow index fund by buying each of the 30 stocks in the Dow. Maybe you pay $10 for each trade, but if you hold them a while, your total commission cost of $300 will definitely be less than the fund manager would take. Here they are:

with ING only real time trades are $10/trade, non real time is $4/trade. Totally worth it. A management company will take 1.5% every year otherwise cutting significantly into gains.

We are managing our portfolio manually, researching stocks, etc... doing well actually, but staying cautious just in case.

The DOW is supposed to be a mini representation of what is happening in the US.

Replacing stocks that no longer represent the economy only makes sense, if a company loses it's dominance and starts changing directions, it's not really representing what the rest of the economy is doing.

I'm just surprised that IBM holds so much weight. I never realized that!

thunderlips11 says

Yep! Which is also why comparing the S&P 500 or many other indexes over decades is not very accurate, since the biggest losers simply vanished and replaced by new winners.
It’s the same as having a teacher who lets you cancel one of your worst grades in a semester.

Yes and no--they are replaced AFTER they became a bad company, so their stock has already taken a huge hit before they get replaced.