Nice work Dex.
Some thoughts. I'd be a little worried about a swoon that lasts longer than 4 years and how it would put pressure on your near cash invested assets. A lost decade? Sound possible?
In the example, I didn't give an asset allocation. Look at the examples again, I was conservative e.g. I didn't give any income towards the 4 year near cash or the contingency money. But, a bond, dividend focused portfolio should not be that stressed. So, even in your 10 year example, you may have to cut back on expenses or dip into your principle. The key to the example, are the key things to look at in the evaluation process.
Would it be worth breaking out your invested reserves into smaller pots of money and explore different ways of securing yearly income according to risk (from risk-less to highly risky). How would you expose your reserves to risk-less investments on up and how much would each pot require?
I'm not sure what you mean.
Also, what could you do with your non-liquid assets (house, condo, trailer, etc.) to help your income. How could you make these resources work for you? For example, I own a home that has the potential to add on an in-law apartment. I could rent the main house or the in-law space. This would reduce housing costs without dedicating any additional resources.
Definately, I could rent out my house, but I don't have the need.
Finally, isn't wine a fruit and therefore a food cost?
Nectar of the Gods, yes.

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Nice work Dex.
Some thoughts. I'd be a little worried about a swoon that lasts longer than 4 years and how it would put pressure on your near cash invested assets. A lost decade? Sound possible?
Would it be worth breaking out your invested reserves into smaller pots of money and explore different ways of securing yearly income according to risk (from risk-less to highly risky). How would you expose your reserves to risk-less investments on up and how much would each pot require?
Also, what could you do with your non-liquid assets (house, condo, trailer, etc.) to help your income. How could you make these resources work for you? For example, I own a home that has the potential to add on an in-law apartment. I could rent the main house or the in-law space. This would reduce housing costs without dedicating any additional resources.
Finally, isn't wine a fruit and therefore a food cost?

The big unanswerable Q for middle class prospective retirement is: will you or your spouse require LTC -- particularly "Memory Care" -- current name for dementia care. If so, it can be devastating to finances, and will become more so if current trends continue. In the past 7-8 years I have seen this situation play out for 3 family members, all different situations in terms of savings ("wealth"), pensions, and family support. I just recently spent the better part of a year accompanying a relative through an endless succession of visits to living facilities with provisions for "memory care", as well as conferences with a nationally known eldercare lawyer. I learned a great deal about costs, about how facilities determine charges and whether the applicant has "ability to pay", about LTC insurance policies and rates (which BTW will certainly go up substantially in the very near future -- plus a substantial differential for females -ahem). We also observed the interesting fact that deluxe retirement facilities are not only being bought up by corporate entities, but many new ones are under construction by these corporations everywhere as well. Since the supply of those with unlimited resources is finite and the for-profits don't take Medicaid when you run out, I assume that the intended clientile is uppermiddle-to-lower-upper, and if and when you are picked clean, you end up moving to wherever they take Medicaid.
This is an extremely complicated subject, and I am no professional observer, merely one who has been a bystander to the struggles of others, and I can only point out here one of the issues which sooner or later many of us will have to face. None of us knows the future, but this possibility is not one that many of us think about when we plan, and the possibilities for financial catastrophy, particularly for a surviving spouse, do exist.
In summary, my point is that there are possibilities that may arise in our retirement that we do not wish to contemplate; that we should consider, and that
we simply cannot guarantee, but should be aware of.
To those who pursue this post to the closing paragraph -- I wish you well, hope that you do not ever have to contemplate such an issue in your own lives, but that you maintain awareness, not only for yourselves, but for others (aka, our society as a whole), and wish you well....

Hi Dex,
You ask a very open-ended question that is poorly timed if it specifically applies to your situation. From your earlier postings, I recall that you jumped into the retirement stream a few years ago. If so, you are probably an unhappy camper these days that prompted the question. Fortunately, reassessments, recoveries, and reversals are often possible.
Good luck on your reassessment project.
Best Wishes.

Too many assumptions to go into there. Monte Carlo and others are like many rule of thumb (e.g. 4% rule) estimators - good for generalities but not good for the specific situations.
Generally, a bottoms up approach is better i.e. budget, net worth, pension, SS etc.
This is my 2015 budget own home, no debt, single person
Basic Living
House
2,117 RE Tax
2,556 HOA
489 Electric
928 Insurance
300 Misc Purchases
133 Mail Box
6,522 Subtotal House
Car
138 AAA
744 Routine Mtc.
1,164 Insurance
82 Registration
1,800 Gas
3,929 Subtotal Car
Personal Expenses
327 Income Taxes
1,200 Cash
360 Medical
340 Cell Phone
3,300 Food
600 Wine
59 Misc
396 Internet Access
300 Dining Out/Entertainment
4,029 Health Ins.
300 Clothes
- Driving Lic
11,211 Subtotal Personal Expenses
21,661 Total Basic Living
Incremental Living - 1
91 Travel Trailer Reg
492 Storage
Good Sam
583
Incremental Living - 2
6,256 Travel/Education/Etc
Misc Hobbies
6,256
6,839 Total Discretionary
28,500 Total Basic + Incremental
Let's assume I don't have any pension or SS, and no inflation for now. What do I need?
$114,000 in near cash for 4 years of expenses - this is ride out market (bond & stock downturns.
$407,143 earning 7% to get to 28,500/year expenses
$100,000 to 150,000 contingency money, if wanted, earning ???
$621,143 to 671,143 total excluding house
Does a person need all that money? Maybe not if the person will collect SS. The closer they are to collecting SS would affect that - e.g. if they are within 2 years they could have less money in near cash.
This is not meant to be a perfect example.
Now let's use Junkster's info on SS $1294 monthly - 15,528/yr
$28,500 Total Basic + Incremental
-$15,528 SS
$12,972 to be funded
$51,888 in near cash for 4 years of expenses - this is ride out market (bond & stock downturns.
$185,143 earning 7% to get to 12,972/year expenses to be funded
$100,000 to 150,000 contingency money, if wanted, earning ???
$337,031 to 357,031 total excluding house
Both of these examples are better than monte carlo and top down rule of thumb.
There are two reasons I can think of that the top down method is the most discussed:
1. Advisors use them to scare people into buying their services
2. Budgeting is boring and most don't people don't have one nor do most know where they spend their money.

I have used this strategy for a good number of years and have throttled my equity allocation back as summer approaches and then usually ramp it back up come late summer and into early fall. The strategy has worked, for me, more times than not. Will it work this summer? Your guess is as good as mine.
Old_Skeet

>> Ignore uniformed judgments by individuals who never used the tool, or even read the literature on the subject.<<
Because I am a bit slow and IQ challenged, please explain to me why a single individual over age 65, debt free, and in need of $20,000 to 25,000 annually (or even $30,000) in out of pocket expenses (after SS and pensions) and with a $2,000,000+ nest egg needs to learn anything about Monte Carlo simulations?? I have known a few lucky investors and traders in this situation who over the years have been in the right place at the right time. They seemed to have done quite well being blissfully ignorant of your beloved mumbo jumbo Monte Carlo and other assorted worthless statistics.
Edit: From reading many of your recent posts and vitriolic exchanges with other members,
it appears you enjoy being a troll.

Hi Dex,
You ask a very open-ended question that is poorly timed if it specifically applies to your situation. From your earlier postings, I recall that you jumped into the retirement stream a few years ago. If so, you are probably an unhappy camper these days that prompted the question. Fortunately, reassessments, recoveries, and reversals are often possible.
A million dollars is a nice nest-egg. But, like in most instances, it depends. It depends very much on the particulars of the situation such as age, wealth, health, partner relationships, preferences, location, and a host of other tangibles and intangibles.
A single answer isn’t appropriate in this forum even for a specific person since the relevant circumstances are dynamic and in constant flux. It is especially not appropriate from the MFO membership given our incomplete and imperfect understanding of your circumstances.
But we can offer generic guidelines and some useful references that will permit candidate retirees to make more informed decisions.
A limitless array of planning tools and aids are easily accessible for anyone willing to do the work. I retired over two decades ago, and even in those prehistoric days, the literature was overwhelming. I selectively used it. Today, given the Internet capabilities, it is a still easier task, but requires some careful screening. All advice is not equal.
I purchased a retirement planning tool generated by an outfit called Educational Technologies, Inc. It included tapes and written documentation. Major sections in it incorporated psychological adjustment, financial planning, investment, heath issues, estate planning, and financial benefit units. I supplemented the financial planning section with independent Monte Carlo simulations.
The retirement decision is multi-dimensional. It is complex with many interacting, dynamic parts. Given that complexity, I doubt that well-meaning MFOers can provide definitive answers beyond some incomplete hints and references. As Reagan said: “Trust, but verify”.
A million dollars might service you very comfortably, but might be totally inadequate for me. In the end, it depends. In the end, the candidate retiree must do the heavy lifting himself. Do the necessary homework. There are no magic wands to simplify the task that MFOers can honestly offer.
I remain consistent in my response to similar questions that you asked on earlier submittals. Explore the usefulness of Monte Carlo simulations. Ignore uniformed judgments by individuals who never used the tool, or even read the literature on the subject.
Experience is a great teacher, but is a time consuming and costly educator. Monte Carlo simulators provide a shortcut learning tool that permits its users to examine a plethora of what-if scenarios tailored to your specific situation. I’ve identified many Internet accessible Monte Carlo codes on earlier interchanges. You can only fully trust your own work.
Good luck on your reassessment project.
Best Wishes.

The table shows $42,557 for a single person. If you are debt free that housing figure would be drastically lower. But also, you have to buy a new vehicle (or newer used one if you are really frugal) every 8 years or so and not sure that is computed anywhere in the table. The healthcare figure also seems a bit higher than medicare plus a 100% supplemental policy. Most of the debt free singles in my area that are retired and over age 65 get by on an average of $36,000 annually (some a tad higher/lower) If they only receive SS and get the average there ($1294 monthly) that means they have out of pocket expenses of around $20,500 annually. So if they have an investment nest egg of $2,000,000 they can live off their principal only if needed without the need of that Monte Carlo mumbo jumbo. If anything they better begin ramping up their retirement spending ala travel, a summer vacation rental, and the like unless they want to leave a lot to their heirs.

>> The only thing that's obvious is that Krugman is either an idiot or he's blatantly lying.
Wow. What a thing to write. Talk about heat instead of light.
Here:
[Fatas] Let me start with the obvious point: your debt is someone else's assets.
http://fatasmihov.blogspot.com/2015/02/those-mountains-of-debt-and-assets.html
>> counts the asset (all the Treasury bonds we hold are counted as assets in our net worth) but it doesn't count the debt.
Why do you think that is?
>> not about Americans and foreigners, it's about which Americans got the benefits and which Americans pay the costs.
right
>> The benefits have already been given. The costs have yet to be paid.
it is always this way !
>> We've been running annual deficits since the mid 1950s with only a couple years of surpluses at the end of Clinton's presidency.
So? It does not matter, all that matters is percentage of GDP.
>> I'll agree with Fatas, growing debt doesn't have to mean we're living beyond our means, but it sure looks that way.
You are not getting it, and I would say do not want to, but your writing is so clear and your interest in reading is manifestly so high, that cannot be the case. Keep reading is all I can suggest.
... Except if you really think Paul Krugman is 'not even close', well, then, no, there is no point in more reading. Quite aside from his being idiotic or blatant liar.
The below is rather deep in the weeds, but may be of interest. Maurice above for example thinks there is a real problem with Paul Samuelson as he read him and the sophisticated views on debt needs and levels today:
http://delong.typepad.com/sdj/2013/03/bill-black-is-justifiably-irate-monday-hoisted-from-comments-weblogging.html
This might help those who read Samuelson (Paul) in college:
http://krugman.blogs.nytimes.com/2009/12/15/the-incomparable-economist/
http://krugman.blogs.nytimes.com/2009/12/14/samuelson-friedman-and-monetary-policy/comment-page-1/
>> Fatas didn't say that debt isn't an indication that we're living beyond our means. He said it doesn't have to be.
Help me understand how this is something other than hairsplitting.
Finally, share what you think the answers are yourself, to whatever you say the problems are? Somehow cut more spending? What? Gold standard? Raise wealthy taxes back to 90%?

Krugman said "Antonio Fatas, commenting on recent work on deleveraging or the lack thereof, emphasizes one of my favorite points: no, debt does not mean that we’re stealing from future generations." Fatas said absolutely nothing about stealing from future generations. He only said that rising debt levels don't necessarily mean we're living beyond our means and he provided as an example the government of Singapore. He also admitted subsequently that Singapore is an outlier among governments.
Fatas even says "This argument does not deny that the actual composition and ownership of assets and liabilities matters" and goes on to say that one has to be careful drawing conclusions from analyses that refer only to the debt side of the balance sheet.
So Krugman goes on to say "Globally, and for the most part even within countries, a rise in debt isn’t an indication that we’re living beyond our means, because as Fatas puts it, one person’s debt is another person’s asset; or as I equivalently put it, debt is money we owe to ourselves — an obviously true statement that, I have discovered, has the power to induce blinding rage in many people."
The only thing that's obvious is that Krugman is either an idiot or he's blatantly lying. I'm not sure which is worse. Fatas didn't say that debt isn't an indication that we're living beyond our means. He said it doesn't have to be. And then Krugman claims that one person's debt is another person's asset is equivalent to debt being money we owe to ourselves. I guess if I loan money to myself that's true but as of last August, more than one third of our debt was owned by foreigners.
forbes.com/sites/mikepatton/2014/10/28/who-owns-the-most-u-s-debt/
That's something more than $6 trillion of "our" debt that is someone else's asset!
The rest let's say is our own asset. But when you look at what started this discussion, the median net worth of Americans, that counts the asset (all the Treasury bonds we hold are counted as assets in our net worth) but it doesn't count the debt. Similar to what Fatas is saying, it’s dangerous to draw conclusions paying attention to only one side of the balance sheet. Yet when I made a comment about the national debt you suggested we should exclude that because it misguides the discussion. If you really believe we owe the money to ourselves and that we're not stealing from future generations why would you be comfortable with a discussion of net worth that counts the asset but excludes the liability?
The question of whether we're stealing from future generations isn't solved even if all of our debt was owned by Americans because it's not about Americans and foreigners, it's about which Americans got the benefits and which Americans pay the costs. The benefits have already been given. The costs have yet to be paid. We've been running annual deficits since the mid 1950s with only a couple years of surpluses at the end of Clinton's presidency. I'll agree with Fatas, growing debt doesn't have to mean we're living beyond our means, but it sure looks that way. We're not at all like his Singapore example where they take the money they raise from issuing debt and save it because they regularly run budget surpluses. I would love to hear a logical explanation why future generations aren't going to be worse off than if we handed them a country with far less debt than we'll pass on, but Krugman isn't even close.

"Additionally, in terms of wealth distribution I'd be curious to know what the population of the "1%" looks like over the years and whether or not that uppermost level of wealth is held by more or fewer hands."
I would think that the numbers to reach the 1% level are being adjusted upwards. Even with that said, I suspect there are more people in that category than before. The average person didn't invest in the markets just a relatively short time ago in history.

Just a few quick thoughts and then I will return to edit later.
Housing - might be fairly accurate if utilities are included.
Transportation - a quick and dirty calculation at $2.50/gallon of regular buys one about 2700 gallons. In seven years of commuting to work with a Silverado pickup I've used 5100 gallons. The articles estimate seems high but may include airfare etc. that I am not accounting for.
Food - $102/week for groceries is more than twice what I spend on average. I'm not sure if dining out is included here or in the Entertainment category.
Apparel - I don't spend that much in 10 years. Sandals and shorts aren't that expensive.

Just getting ready to walk out the door and go hiking and you start another one. I've always thought you need to be debt free (no mortgage, no rent, etc.) For a single retiree over age 65, $2,000,000 should do the trick and $3,000,000 for a couple. That's assuming your only income is Social Security and you don't live in some ultra expensive region of the country. It's also based on never making another penny in the market and conversely never losing another penny. Albeit I would hope your account can still compound, even if ever so slightly over those retirement years. Not a popular concept here, but you can control your losses in the market. On the other hand, I know many retirees who don't have even $100,000 but because of generous pensions and SS are living the good life. Dex, you are the master of interesting threads where there is never a right or wrong answer. Check in later this evening.

"“the odds that merely having more money will make you happier are pretty close to zero”."
Can I have his, then?
Over the past few years, I've increasingly focused on having a long-term view and preparing for that and being satisfied with that and then going with the flow to some degree. I just find it ultimately healthy. Hobbies, learning, reading. Ultimately, I've found that I've learned a great degree via investing because it has lead me in unexpected directions as I try to research companies, countries, industries, etc. I'd always found healthcare to be something that I "didn't understand, so let a fund manager do it." One day, I went, why couldn't I try to understand a lot of these concepts? It's ultimately been rewarding on a number of levels.
That said, in terms of people going, "Money doesn't make you happier" often leads me to saying some variation on what I do above.
As for occasional humor, I just find it better than being so serious about certain subjects I ultimately don't think I will change nor will I change someone's opinion on. Perhaps a little humor will lead someone to maybe be a little more open than arguing with them would or maybe have a second thought about something they'd stood firm on. Maybe not.
Perhaps there's a part of me that feels monetary policy has been distorted over the last several years to the point where perhaps it is a little ridiculous the kind of "Twilight Zone" we find ourselves in, where the focus is not really on anything but what Yellen might say (this Friday btw) and good news is regarded as bad because the market is so addicted to easy money.
As for the graph in the original post, perhaps it really does show that those who are doing well are doing well and much of the rest of the economy is not, or muddling along. Perhaps it further illustrates the lack of financial education (was told by a relative the other day when mentioning financial education that their 25-year-old had no idea how to write a check.) We are all on an investing board. What % of the population hasn't been taught or taught themselves basic investing concepts? I'd be willing to guess a larger % than most would think and that's unfortunate.
Additionally, in terms of wealth distribution I'd be curious to know what the population of the "1%" looks like over the years and whether or not that uppermost level of wealth is held by more or fewer hands.

"Jeez, nothing like sarcastic preemption to cloud the facts. "
How about the religious zealot-level of devotion to theory, to the point where anyone who doesn't agree with you is insulted and given a reading list so you can make sure they are properly indoctrinated? I would be fascinated the response on this board if Krugman came out tomorrow and said he was becoming a Republican. It would be like telling kids there is no Santa.
And at least perhaps my light post gave a couple of people a chuckle. Ultimately, the decision that I have made is to do the only thing I can do: figure where I believe things are going and invest in a manner that expresses those beliefs. I will be light, I will occasionally be sarcastic, because honestly, we can sit here and argue about economic theory, but ultimately I don't believe that I have one iota of say (or do the people on this board, unless one of you is an FOMC member that the rest of us are unaware of) as to the ultimate direction this economy is being taken in. Beyond that, we live in an economy where there have been more than a few examples of "if the numbers don't confirm the narrative, change the numbers." We don't like GDP? Lets change how it's calculated. Ah, all better. Or, the goalposts are endlessly moved.
Given my lack of control, all I can do is attempt to try and think ahead and play futurist and invest accordingly. That's all I can do and coming to terms with that fact is ultimately freeing from the standpoint of, I don't care what one FOMC member does today and that another will ultimately probably contradict them a day or two later. I may not agree with monetary policy, but you know what, I really just don't care as much. I know that this period will end badly -and I say that with the utmost certainty - but I've invested in the manner that I think is appropriate. And that's all I can do. Maybe I'll crack jokes on here on occasion, I just think it's a better use of time than becoming stressed when someone says something I don't agree with.
All of this arguing on the internet does nothing, it fixes nothing and it's ultimately a waste of time. I love productive conversation - any sort of discussion of monetary policy or politics is ultimately futile because people have grown so deeply fixated on their beliefs that anyone else is often largely either shouted down or ignored. So, why do it? Or why not crack a few jokes. If I get someone to smile when I post a joke post with a "The More You Know" PSA at the end, that's worthwhile to me. I'm happy to talk about investments for hours on end, but the divisiveness of people in regards to certain topics does often lead to a joke because ultimately, I'd rather laugh than be upset over the internet about views of someone else's that I know with great certainty they have no interest whatsoever in changing. When I do crack a joke or make light, it's the almost religious devotion to political parties that shows itself. As I've said before on this board, it's the internet, don't get stressed by someone who doesn't agree with you - you'll never get everyone to agree with you. If you can have a constructive conversation on the internet - an increasing rarity - be happy.
As for Krugman, I find Krugman's delight over destruction (to the point where he went on cable news and suggested that creating a real life sequel to "Independence Day" would be a great idea) as "GDP positive!" to be disturbing, among other issues. This is not exactly something that one has to search for examples of, either - there are more than a few, to the point where Krugman has been parodied for this on multiple occasions.
His wild-eyed rant on CNN about how a "fake alien invasion would help GDP" - where to begin, aside from the fact that the man looked out of his mind. As far as I'm concerned, if someone can look at this video (http://hotair.com/archives/2011/08/15/krugman-you-know-what-this-economy-needs-a-space-alien-invasion/) and say, "Gee, he sounds like someone who I want to follow", then please, go right ahead.
"No one says enormous sustained financed spending (on anything, not just infrastructure, it could be on unneeded weapons) at multiples larger than productive economic activity is a good idea. Meaning sure, heedless debt can pose a threat to financial stability. But it's not like that now"
Well, I'm very glad that you are trusting of this government to spend money so wisely and regulate spending so well. The complete faith in the system and the small group tasked with regulating it is really quite remarkable.
"It's not like that now." Nor will it ever get out of hand, right? Nor have there ever been any examples in history, right? But we're different, right?
It's the attitude that the increasingly complex and interconnected global economy can be dialed up and down like an air conditioner that irks me. "It's fine now, right?" "Want it a little warmer, a little cooler? Easy peasy."
How much confidence do you have that you can control this? "100%?" I'm sure Bernanke wouldn't have said "Ehhhh, 50/50", but can you really have 100% confidence in controlling a system that has grown increasingly complex, even since 2008? In a system that is interconnected and relies heavily upon confidence - something that's difficult to control, especially once it is lost? Where are we, several years of ZIRP and multiple QE's later? The world isn't ending, but the ROI for what has been the easiest monetary policy in history seems rather lackluster and now we're here with weak GDP growth and little in the way to stop the Winter that we've been trying to put off and buy our way out of for so long.
I have a significant fascination with how things work. However, I tend to focus it on learning more about science, industry, other cultures and other such things. I can have my views on economic theory and monetary policy, but as I get a little older I suppose I want to devote time to topics that are ultimately more enjoyable and perhaps a tad more positive.
People lack respect for the potential volatility, complexity and fragility of the global economy - 2008 was a delightful example, but it's clear that we haven't learned anything.
Ultimately, going back to the topic at hand, as I noted above, there have been enough studies that I don't doubt that the graphs are likely "in the general vicinity" of being correct.

@davidrmoran, like I said I was joking, but I think your view of the national debt is overly simplistic. The government can certainly print the money necessary to pay those debts but to think that will have no economic impact on our children or their children or their children is sadly mistaken. It's an enormous Ponzi scheme that won't end well someday.

Oh boy, here we go...
1. If you say what you said above three times, Paul Krugman will appear. To lecture you. If you get to hear about how a faked alien invasion would be a great thing for the economy, told in wild-eyed fashion, bonus, because that's just amusing on so many levels.
2. The government can print a million bajillion dollars and it will have no negative effect. We have had so many great discoveries and advancements over the years, silly us overlooked the idea that we can print our way to prosperity. Your children and their children will thank this generation for figuring this out while they sit on the beach watching funny cat videos on Youtube and texting each other while the robots (built with printed money) do everything.
3. No, the idea that we can print and print and print does not sound like porn to politicians and their cronies. No waste or malinvestment will happen, either. Government will print and print and print and not spend it on things like infrastructure or improving education in this country, because that would be just silly. By the way, no such thing as malinvestment. Solyndra was a "valuable learning experience".
For all of this incredibly, deeply sarcastic information.... you're welcome.

My thanks to all the MFO people who kindly helped (and succeeded) I am sending this string to my adviser and telling him to shape up or ship out.The quality of the information I have gotten over the years ranks head and shoulders above other newsletters (and it's FREE) I suspect that there are some brilliant money managers hiding behind those aliases. Muchos gracias, Alejandro

The Fed published these results in 2015 for the year 2013:
On Home Equity:
"Another measure is to compare net worth to the median sale price of an existing home in the last several years--- about $200,000. Do that and you find that the net worth of the median household is no more than the value of a median priced home. Even among the top 25 percent, net worth is never more than about 3 times the value of the median home. This suggests that our collective wealth is pretty thin. Most people have the bulk of their wealth in home equity. (Talk about scary notions.)"
chasing_the_big_dogs

Note: Fidelity's study covered the 23 year time-span, 1992-2014 (limited by availability of the data they sought).
-
Excerpt #1 - "The average actively run U.S. small-company and foreign large-company stock fund beat their prospectus benchmarks over those 23 years after all ongoing fund expenses. The average margin was about 100 basis points. Active U.S. large-cap funds trailed their prospectus benchmarks but by a moderate 67 basis points, meaning that they did outperform before paying their expenses."
Reaction: I'm not surprised. The advantage of indexing appears most pronounced for large-cap domestic stocks. If you own a diversified managed fund (like PRSGX), diversified across global markets and holding smaller as well as larger companies, the performance difference between that type of fund, on average, and the appropriate indexes is likely negligible. (*The latest annual report for PRSGX shows the fund invested 33% in international assets with an ER of .78%.)
-
Excerpt #2 - "Funds that feed in big, highly liquid markets and which follow buy-and-hold strategies may benefit from heft. A giant asset base gives them giant revenue streams, which may be used to staff large research teams, hire expensive talent, and receive [glances furtively] better access to company managements. Scale also leads to lower expense ratios, which of course most directly aid fund returns."
Reaction: I agree. I also think there's a popular misconception regarding the term "manager." It can refer to a single "hands-on" individual like the well known Peter Lynch and Garrett Van Wagoner - as critics of managed funds like to point out. However, more to the article's point, "manager" can also reference a team of highly capable individuals able to synthesize a variety of research-based insights into markets, revenue streams, management, market capitalization/value, and technological and geopolitical trends in ways a solo manager cannot. (The style is notable at Dodge and Cox.) As the author suggests, such companies tend to buy and hold for very long periods.
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Excerpt #3 - "There’s nothing in there to indicate that indexing is suboptimal. On the other hand, it does indicate that active investors aren’t dupes, as commonly portrayed. After all, most of them have been investing in the largest fund companies, and most of them have gravitated toward the cheaper funds."
Reaction: None. He says it very well.
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Excerpt #4 - "Clearly, funds that invest in niche, illiquid markets and that trade frequently will quickly struggle with incoming assets. So, too, will many funds that hold concentrated portfolios."
Reaction - This is outside the purview of most of the article, but reinforces something I've long suspected. Many funds with exotic strategies (long-short, market-neutral, hedged, multi-asset, etc.) outperform for brief periods only to disappoint investors later. As the author suggests, much of this erratic performance is related to "hot" money moving around. Initial inflows propel the funds upward, but (predictable) outflows later work to their detriment.

FYI: When Baron Funds unveiled an emerging-market fund at the end of 2010, it seemed like a departure for a boutique firm best known for its intense focus on growing entrepreneurial companies.
Baron Emerging Markets manager Michael Kass focuses on the rise of the emerging market entrepreneur. Photograph: Ken Schles for Barron’s
Yet that’s exactly the premise behind the four-year-old, $1.6 billion Baron Emerging Markets (ticker: BEXFX). “The next stage of emerging-market growth is all about the rise of the entrepreneur,” says Michael Kass, whose all-cap fund is up 10.5% a year over the past three years, better than 97% of emerging-market funds. “I refer to it as EM 2.0.”
Regards,
Ted
http://online.barrons.com/articles/betting-on-the-emerging-market-entrepreneur-1431743945#printMode
M* Snapshot BEXFX: http://www.morningstar.com/funds/XNAS/BEXFX/quote.html
Lipper Snapshot BEXFX: http://www.marketwatch.com/investing/Fund/BEXFX?countrycode=US
BEXFX Is Unranked In The (EM) Fund Category By U.S. News & World Report:
http://money.usnews.com/funds/mutual-funds/diversified-emerging-mkts/baron-emerging-markets-fund/bexfx