Lesson One: Efficient Portfolios of Indexes The first lesson for index funds
investors is to understand the value of
a globally diversified portfolio of index
funds, tilted toward small and value indexes.
Indexfunds.com and Index Funds Advisors,
Inc. has identified a set of 20 efficient
portfolios which provide among the highest
level of returns documented over 33 years,
at each level of risk*. An investor only
needs to determine where they should be
on the scale of 3 to 16 standard deviations,
which has been converted to portfolios numbered
from 5 to 100.
This graph shows all the indexes used in
these portfolios, the 20 index portfolios
and the NASDAQ index. All portfolio data
and index data is net of mutual fund and
investment advisor fees, except the S&P
500 and NASDAQ. The Big Question for investors:
Where does your portfolio plot on this graph,
after all fees?
Click
a colored portfolio button to review
the asset allocation.
Another interesting
way to compare the index portfolios
above is to look at the shape of
the bell shaped curve or the distribution
of returns over long periods of
time. The dynamic chart below displays
the distribution of monthly returns
over 420 months of 20 index portfolios.
Portfolio 5 is very concentrated
in the center so it has a narrow
bell shaped curve, which is representative
of a low standard deviation or risk
level and therefore a lower return.
This means the range of probable
outcomes is more narrow or tighter
around the average or mean. On the
other hand, Portfolio 100 has a
wider distribution around a higher
monthly average return. This chart
helps investors visualize the risk
of various investments.
The
Big Question? What is the shape
of your portfolio bell curve?
Index Funds: The
12-Step Program for Active Investors, is
a complete investment education program
and the treatment of choice for active investors.
After you have completed the program, you
will be prepared to invest and relax.
An Overview of the 12-Steps
