Capital Income Builder 5 years

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newnew's picture
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Here's Morningstar 5 year #s for CAIBX: total return: 3.26 (after taxes: 0.41)
just for fun: CAIBX is really four classes (currently 7% cash, 43% Intl, 20% Value and 30% bonds). If INSTEAD you bought four cheap indexes in same proportion, which I just ran the #s on, your 5 year return would be 3.16. The Std Dev would be only 9.45. The taxes would be much lower with this passive strategy than with CAIBX.

 
Moral of this story? CAIBX's returns are based on the Asset class %'s, not picking great securities. Might as well be tax-efficient since the rest is so similar. Am Fds simply uses SP500 as the benchmark usually--a joke, but it's good for sales.

B24's picture
B24
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Try their 10, 15, and 20 year numbers.  And look at it again in 10 years.  Look at the 10-year number through 2007.  Comparing anything right now including 2008 is just short-sighted.  It doesn't matter what you're comparing.  95% of investments in the market got whacked this year.  What did slightly worse than others is a matter of luck.  Setting aside managed futures, annuities, etc.  If we are just talking about stocks, bonds and cash, 2008 can't be a real bell-weather.
Don't get me wrong, CAIBX is not the end-all of mutual funds.  I think it's good.  But this year, nothing worked.  Until this year, CAIBX smoked the past 20 years.  Just look at its history.  How did your indexes hold up 2000-2002?  Far worse than CAIBX.

buyandhold's picture
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Joined: 2008-09-23

Also worth noting that  CIB sets those allocations and presumably is more qualified to do so than you or I. Those can change. If you use index funds, then you have to set those yourself -- good luck telling a client you want to be 20 pct bonds, 31 pct Value, etc., etc., and explain to him your credentials and expertise to do so.
 
 

chief123's picture
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Joined: 2008-10-28

I love when people look back and say "Hey if you would have invested the same amount in the same indexes then you would have beaten it"... Yeah that's great, but the strategy of the allocation is what you didn't have 3,5,10 years ago.

Ummm I think the CGM Focus fund is good, but you have to sell out by June 08... That is the same idea..

As always hindsight is 20/20

Disclosure: I don't own or sell CIB, but these comments piss me off

Spaceman Spiff's picture
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Joined: 2006-08-08

Did you run CAIBX.LW or just CAIBX?  Did you run the indexes with a management fee?

Where are you finding that American Funds usually uses the S&P 500 as the benchmark?  Off the Morningstar sheet?  The couple of quarterly fact sheets that I have sitting around do show the S&P 500 returns compared to the funds, but they also include the LCV index.  And the international funds use the MSCI.  Before you go convincing yourself that American Funds is bad and indexing is good, make sure you're making an apples to apples comparison.  Take B24's advice and run it for a longer period of time.  You might find that you'll swing your thought back the other way.  

chief123's picture
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Joined: 2008-10-28

I think his point was the fund, is more about asset allocation than it is about good stock picking.

chief123's picture
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Joined: 2008-10-28

Ice, for your portfolios, are you building them with ETFs? Are you actively managing the indexes or just setting up an allocation and leaving it? Not being a jerk, actually asking.

B24's picture
B24
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Joined: 2008-07-08

Actually, I wasn't saying it was about asset allocation exactly.  I was saying that Global Allocation funds have the lattitude to go anywhere in the world, to any asset class, to find the best investment opportunities.  And for the record, I don't use just CAIBX.  I use several other funds (outside of American) that will clean clocks.  I like them because they can decide on asset allocation AND specific investment bets.  They may over- or under-weight certain asset classes.  They may make sector bets.  They may make currency bets.  They may find ONE great opportuniity in Korea or China or India.  They may find that Canadian Bonds are a good opportunity.  Whatever. 
Now, CAIBX is the LEAST ecclectic of these type of funds.  They focus mostly on mix of stocks, bonds, cash, int'l.  But they go out and buy where the best opportunities are.  They are a bit more handcuffed than say First Eagle GLobal, Blackrock Global, Ivy Asset, etc.
The problem with indexing (as I see it), is that WE have to decide on asset allocation.  Now, I am fine with that decision based on the client (i.e. age, income needs, etc.), but I don't want to pit my ability to decide on sector rotation, economic conditions, etc. against the managers at American Funds, or First Eagle, or Ivy, or Blackrock, or whereever.  That is their SOLE responsibility.  I don't think I can do that better than them.

chief123's picture
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Joined: 2008-10-28

I was talking about the first poster NewNew

snaggletooth's picture
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Joined: 2007-07-13

Ice, as you and I have talked about this before, I will keep this brief. 
 
I just have an inherent belief that there is some value a manager has in their ability to see macro trends develop and take advantage.  No, they won't always be perfect.  Heck, an all-star MLB player only needs 3 hits out of 10 at bats.
 
For instance, if you happen to believe that there is a bubble forming in treasuries, why not short them?  If you can make money on some currency plays, why not try?  If you think infrastructure spending will increase because of Obama, why not try to capitalize there?  If there are some opportunities in the high yield bond market, let's try to find the value.
 
I am trying to build a book.  I don't have time to do all this research, kick the tires of companies, call all the clients, convince them what we are doing, etc...  I'm not saying it's for all assets, not even a majority, but I think a case can be made for a portion.
 
I don't have any statistical information for you, but I know what I can do, what I can't do, what I want to do, and what I don't want to do. 
 
I see the purpose for indexing and I would be fine to do that for some asset classes, so I'm not racing with blinders here.

B24's picture
B24
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Joined: 2008-07-08

ICE, none of this is a black-and-white science.  You don't either win or lose.  There's shades of grey in all of this.  Look at what these funds have done over the past 5, 10, 15, 20 years.  No, don't look at trailing returns, look at year-by-year numbers.  Just because people didn't catch this calamity does not dismiss 20 years of great, consistent results.  How did indexing do this year?  Seriously?  I'm not talking about the 500.  I'm talking about exposure to all different segments.  How'd it do?  If indexing won in every market, up-down-sideways, we would all be Bernie Madoffs (until November).  But it doesn't, and it didn't.  If you're strategy worked (actually, works.  You haven't been around enough for much to have worked yet) all the time, you would have billions under management.  So too, would the rest of the indexers (and Vanguard doesn't count - billions in marketing over the years accounts for that).

Mike Damone's picture
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Joined: 2004-12-01

I don't think we can dismiss active management just because the active managers did really crappy this year.  For example, Dodge & Cox Stock Fund.  They've had a horrible year, but the past performance since 1964 has been top notch. 

henryhill's picture
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Joined: 2007-08-23

Bill Gross beat the s&p for 15 straight years.  Ice, would you call that  luck?

chief123's picture
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Joined: 2008-10-28

Wasn't that Bill Miller

chief123's picture
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Joined: 2008-10-28

I separate portfolios into 3-5 sections: etfs, alternative, uits, equities and less than 10% mutual funds(actively managed)..

I figure there is more than one way to climb a mountain and since I can't predict what that will be, i take a couple paths.

WealthManager's picture
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Joined: 2006-05-16

Does it really make that much of a difference whether you use ETFs or actively managed mutual funds if all you are doing is an asset allocation strategy?  I don’t believe so.  The differences don’t start to materialize until you take the investments to levels beyond asset allocation.<?: prefix = o ns = "urn:schemas-microsoft-com:office:office" />
 
If a client can handle proper asset allocation on their own, why should they pay to have an advisor to do it for them?  Fortunately for asset allocation advisors, many clients either can not or choose not to do it on their own.
 
If you are an asset allocation advisor, I think that you are better off focusing on there other areas where you provide value.  While significant, investment selection is only one small piece of the services that an asset allocation advisor can offer.  Unfortunately it is where people focus most of their energy.
 
--WM

bspears's picture
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Joined: 2006-11-08

Until the fund companies, annuity firms etc. show ALL expenses of running any fund how can anyone compare funds vs indexing?

Hank Moody's picture
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Joined: 2008-11-10

iceco1d wrote:I swear to god, sometimes I'm talking to a wall on this forum. 
 
henryhill wrote:Bill Gross beat the s&p for 15 straight years.  Ice, would you call that  luck?
 
Depends.  Did Mr. Gross (or Mr. Miller for that matter) invest only in securities that were found in the S&P 500 in each of those years?  Wait, what's that?  Is that a no?  Oh, alright then.  One more of those sly benchmarks I guess! 
 
B24 - you are taking my index comments out of context.  It is not the 'end all, be all' of investing, in terms of always reaping a positive gains.  We are talking about whether or not it is worth it, to give Ivy, or Putnam, or Russell, or whoever 1% (ish) a year in a "management fee" to manage money, or whether you can put together a similar portfolio, with less cost and turnovere, and let the client keeps an extra 1% or so...which over time, makes them a shitload of extra money (and you).
 
But no.  I ask questions.  I get marketing garbage for responses. 
 
We can't time the market...but we can pick which sectors or macroeconomic trends are in play?  That makes a ton of sense. 
 
One one hand, Mr. Client, we don't know what the market will do, so we need to stay 100% invested, all the time, because if we don't, if we miss the best 20 days in the market, your return will be lowered to XY%.  But forget the fact that I JUST TOLD YOU we don't know what the market will do...but WE DO KNOW what companies will outperform the market, and WE DO KNOW what sectors to include and not include, and WE DO KNOW what to short, and WE DO KNOW when to go cash heavy.
 
Well Gee Golly Mr. Advisor, seems like these guys know everything about the market, except for when it will go up and down!
 
My god. 
 
How long have I been on this forum - and I get the same opposition, and the same rebuttals, every week.  Have any single one one of you actually looked any of this up?  I mean, looked it up.  Done some research on your own.  Don't take my word for it.  Don't take Templeton's word for it.  Have you? 
 
These threads go on for miles, as if they are some sort of debate - and it's not a debate.  It's facts.  Why aren't you inclined to arm yourself with them? 
 
 This board is definitely long on stupid people.

WealthManager's picture
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iceco1d wrote:Unreal.  WM, what in gods name are you talking about? 
 

I was actually partially supporting your viewpoint.<?: prefix = o ns = "urn:schemas-microsoft-com:office:office" />
 
I see that I got a bit off topic.    It must have been because I had a few client calls mid-post.
 
Shorter answer:
If all you do is stocks/bonds/cash asset allocation as your investment strategy then it makes little difference whether you use Vanguard, ETFs or actively managed mutual funds.  Since there is little value-add in the product selection, stop focusing on the products and start focusing on your service.
 
Better?
 
--WM

anonymous's picture
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Joined: 2005-09-29

Until the fund companies, annuity firms etc. show ALL expenses of running any fund how can anyone compare funds vs indexing?
What expenses are these?

newnew's picture
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Joined: 2007-02-23

chief: you're right about my point.
 
snaggle: "I am trying to build a book.  I don't have time to do all this research".......is a great reason to chuck all this fund family stuff and buy asset classes in their purest tradeable form. Much easier.
 
icecold is absoluetly right, Hank is absolutely wrong.

jkl1v1n6's picture
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Joined: 2008-10-06

Explicit commissions, Implicit trading costs, and soft dollar arrangements borne by the fund.

newnew's picture
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Joined: 2007-02-23

well, returns shown are net of trading costs. But that doesn't mean they don't add to a good argument against active funds MOVING FORWARD.

jkl1v1n6's picture
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Joined: 2008-10-06

I do not pretend to understand all of this.  But in a nutshell, actively managed mutual funds cost more than what they say and this should be taken into consideration.  I think it strengthens the arguement for indexing certain asset classes.  At least it does for me
 
Read it when you're ready to go to bed:
 
http://thefloat.typepad.com/the_float/files/2004_zag_study_on_mutual_fund_trading_costs.pdf

buyandhold's picture
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Joined: 2008-09-23

WealthManager wrote:Does it really make that much of a difference whether you use ETFs or actively managed mutual funds if all you are doing is an asset allocation strategy?  I don’t believe so.  The differences don’t start to materialize until you take the investments to levels beyond asset allocation.
 
If a client can handle proper asset allocation on their own, why should they pay to have an advisor to do it for them?  Fortunately for asset allocation advisors, many clients either can not or choose not to do it on their own.
 
If you are an asset allocation advisor, I think that you are better off focusing on there other areas where you provide value.  While significant, investment selection is only one small piece of the services that an asset allocation advisor can offer.  Unfortunately it is where people focus most of their energy.
 
--WMAgreed. I just show 'em my Edward Jones diversification bar chart, show them the cool Lord Abbett Knight's logo and then move on to more important issues like 'Did you call the damn estate attorney like I told you!' and 'Exactly what kind of income do you want in retirement? No, really, give me a sensible answer.'

newnew's picture
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Joined: 2007-02-23

lotta truth in that. I put on the green eye shades on this forum "just for fun" (to quote my first post on this topic). When another FA says that my posts on indexing "piss me off"-- it just cracks me up.
 
We're not splitting the atom here. 

noggin's picture
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Joined: 2004-11-30

Lord Abbett rules.... Love those guys 2 spaces one way then 1 space the other way, pawns and bishops never see you coming.

moneyguy's picture
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Joined: 2008-11-21

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WealthManager's picture
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moneyguy wrote:*I follow an internal analyst I have a lot of faith in, and provide this level of active management without adding in a 3rd party fee.  For one, I believe in it.  Secondly, I want to avoid the question, "So we are just buying a bunch of indeces, holding the %'s constant, and rebalancing no matter what?  Okay, I'll do that at Vanguard."  Not saying I wouldn't have an answer, I just want to believe my own answer. 
 
**I also overlay a covered call strategy over the portfolio, but that is a topic for another time.

 Sounds like Merrill Lynch's sector strategy portfolios by Brian BelskiWhat minimums do you use for your covered call strategy?--WM

moneyguy's picture
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moneyguy's picture
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WealthManager's picture
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moneyguy wrote:Yes, the domestic core is comprised of BB's weightings, but not the stock selections. 
 
For the covered calls, it is anywhere between 1 and 2%.  I wish I could standardize, but my negotiating skills need some polishing.  I go to 1% all too often.If you are not following BB's stock picks, what are you using for your selections?  Why do you think your methodology is better?I was not asking what you charge.  I don't go below 1.5%, unless it is a $2.5MM+ relationship....but that's not a problem yet.  I was asking what is the minimum size portfolio that you would put in a covered call portfolio.  I am curious on answers for both a balanced portfolio (with S/B/C/AI) and just the covered portion of any overall portfolio.  For me it's $500k on the covered portion and about $1.5MM on the total...but that can vary dramatically based on tolerances.--WM

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