Based on responses to my earlier posts, it's clear many readers feel strongly about their index funds, as I do my managed funds. These comments demonstrated depth of knowledge -- and shall I say -- no shortage of enthusiasm :)

While I am generally pleased with my current investment plan, hearing readers' enthusiasm for index funds made me question: “Am I really doing the right thing?”

So I decided to assemble an asset-allocated model of index funds, and compare its performance to Dodge & Cox Balanced, my favorite core fund. The results are shared in this series of posts. First, here's some background...

Investment Goal

Maximizing wealth accumulation is no longer my priority. Now, semi-retired, I seek steady, predictable growth. While sensitive to tax implications, tax efficiency does not override my objective to avoid big losses (read AARP’s tail of two retirees - bottom of post).

Note: The D&C fund used in this comparison has low turnover (18% in 2004), so it is tax efficient relative to most managed funds.

Methodology

- For this exercise I used a handful of index funds (mostly Vanguard), and ran the 1, 3, 5 and 10 year returns using one of Morningstar’s asset allocation models.

- The model I selected, Morningstar’s Growth Portfolio, has a bond allocation similar to D&C Balanced. Visit Step 4, where you can also see results for Morningstar’s Balanced Portfolio (the later underperformed Growth in all but the 5-year timeframe).

- The results from Morningstar’s model were then compared with my Dodge & Cox Balanced fund.

- And to make sure that D&C Balanced is not a complete fluke: In Step 5, I used Morningstar’s fund screener to identify a handful of funds that have achieved similar results.

Perspective

- Please keep the feedback coming. We all learn from the dialogue.

- My goal with this blog is not to tell you what you should do. Rather, I share my opinions and experiences, in hope that readers may benefit by hearing of my successes as well as my failures. In turn, I learn from your posts and comments.

- My portfolio also contains a high percentage of non-fund assets.

- I have just enough knowledge to be dangerous, so my opinions should not be considered investment advice.

Step 0: Putting index funds through their paces
Step 1: Select asset allocation
Step 2: Choose the funds
Step 3: Calculate 1, 3, 5 & 10 year returns
Step 4: View the results
Step 5: Find more funds like D&C Balanced

- Read the post that got it all started

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