Index Fund Advisors
Founder & President
Mark Hebner is Founder and President of Index Fund Advisors, Inc. (IFA), author of the popular book, "Index Funds: The 12-Step Recovery Program for Active Investors", and is a respected speaker, news contributor and provider of authoritative information and education on investing.
"Index Funds" has received praise from financial industry and academic luminaries, including John Bogle, David Booth, Burton Malkiel, as well as Nobel Laureates Harry Markowitz and Paul Samuelson. It was nominated as one of the three all-time greatest investment books, along with the writings of John Bogle and Warren Buffett.
IFA avoids the futile, speculative, and unnecessary cost-generating activities of stock, time, manager, and style picking. Contrarily, IFA employs a disciplined, quantitative approach that emphasizes broad diversification and consistent exposure to the structural trends of global publicly-traded markets.
IFA is a true fiduciary financial advisory firm, compelled by law to act in the best interests of clients, always – something the investing public, mistakenly, believes all financial advisors are required to do.
Mark contends that one can be a passive investor but still apply active intelligence to the process of investing. He takes an evidence-based academic approach to this process and illustrates it with art and science.
Mark was a member of the Young Presidents' Organization for 19 years and is currently a member of the World Presidents' Organization and the Chief Executives Organization.
Prior to founding Index Fund Advisors in 1999, Mark was President, CEO and co-Founder of Syncor International (previously a public company - SCOR) from 1975 to 1985. In Jan. 2003, Cardinal Health acquired Syncor for approximately $850 million. As a division of Cardinal Health, it is the largest radiopharmaceutical network in the United States.
BS Nuclear Pharmacy, University of New Mexico
MBA, University of California at Irvine
Assets Under Management:
Nothing contained in this publication is intended to constitute legal, tax, securities, or investment advice, nor an opinion regarding the appropriateness of any investment, nor a solicitation of any type. The general information contained in this publication should not be acted upon without obtaining specific legal, tax, and investment advice from a licensed professional.
This is a great question because essentially what you are asking is “how many managers have enough skill to beat the market after all fees and expenses?” Before we give you an answer it is essential that we are comparing apples to apples. So if we are asking how many managers outperform the S&P 500, which is a US large cap index, then we need to look at the performance of active managers who are trying to pick the winners in the US large cap asset class. We don’t want to look at small cap managers or foreign stock managers or bond managers because we would then be comparing apples to oranges.
All right, enough with the fruit. Based on the Standard & Poor’s Index Versus Active (SPIVA) scorecard as of June 30, 2015, 65.34% of large cap managers underperformed the S&P 500 for the 1-year period. Over the last 5-year period, 80.8% underperformed the S&P 500. Over the last 10-year period, 79.59% of active managers underperformed. These types of figures are very similar in other asset classes like small cap stocks and foreign stocks.
Rest assured, it is very, very difficult to do over long time horizons, which is why we tell our investors to buy and hold a globally diversified portfolio of index funds versus trying to pick the next best winner.
First, risk and return go hand in hand. There is no such thing as a free lunch. For someone who is 26 years old, it is imperative for you take a healthy amount of risk (at least 70% in stocks). The best way to gain exposure to both the stock and bond markets is to hold a globally diversified portfolio of index funds. Forget trying to day-trade, pick winning stocks, time markets, or invest money with hot mutual fund mangers. All of these strategies have led to more destruction of wealth versus a low-cost index alternative. There are times when markets are going to be very turbulent, but you need to stay in it through thick and thin. Time is on your side.
Stay away from buying individual bonds. Transaction costs are too expensive for the amount of money you are looking to invest. Buy a low-cost bond fund instead.
Ideally, you should have 6-12 months of living expenses set aside for a rainy day, with the rest of your assets invested based on your longer term goals. This can include retirement, college planning, purchasing a home, starting a business, etc. Your 401(k) should be heavily invested in equities since you have 35-40 years before you will touch those assets. Shorter term goals should be invested very conservatively using money market funds, short term bond index funds, and maybe a little bit of stock index funds.
In terms of investing for the long run, a diversified portfolio of index funds is the best route to go. A fiduciary financial advisor serves an important role in assisting you to maximize your expected returns for the risk you take. Your financial advisor should help increase your investment knowledge base, help you to understand your capacity to take risk, provide portfolio management services (rebalancing, tax loss harvesting, asset allocation, etc.) and help to manage your emotional reactions to changing equity market conditions. In other words, they are behavioral coaches.
Although it is easy to say right now that you will invest in index funds and hold for the long term, investor studies show that most people will abandon their strategy (sell out) when market conditions start to become turbulent. This is the exact wrong time to be thinking about making changes to your investment strategy. As your “coach”, your investment advisor is there to educate you on the benefits of sticking with your investment strategy in volatile times. This advice is designed to keep you from making decisions that will significantly reduce the expected returns on your investments. In fact, based on 20 different independent studies, investors who utilize index funds, but do not consult an advisor only earned 79% of the index fund’s return.
Great question. It depends on whether or not you are allowed to make Roth contributions to your 401(k). Ideally, you should be saving 10-15%. Because you are young and are likely to earn more income later on, it makes sense to make Roth contributions. Now, your employer match is free money just waiting to be put into your retirement account.
Assuming your make $45K per year, I would suggest that you contribute the maximum amount to your 401(k) that allows you to earn the full employer match and then put any remaining savings to a Roth IRA. Taking advantage of the employer match is more important than the tax status of the contribution.
Given the very short time horizon, we would recommend staying away from riskier assets such as stocks, real estate, commodities, and long-term bonds. Stick with very high quality short term bonds. Specifically, utilize low cost short-term bond index funds as a safe haven for your assets. The goal is to buy a home. The risk is too great to try and earn a substantial return on your money in such a short time horizon. You are right; it would be pure speculation (gambling) to try to maximize your expected return in the next 2 years. Protect that money. Having a home in the next two years is the priority.