Index investing superior to dgi

Before I delve too deep into this, it should be noted that I find index investing to be a fantastic strategy for a great many people out there, and probably the vast majority of investors would do better to invest in a small group of high quality, low expense index funds and be done with it. An index mutual fund is said to provide broad market exposure, low operating expenses and low portfolio turnover.

There are thousands of index funds available for an inclined investor to research, and invest in. This fund typically focuses on businesses with at least a year track record of dividend growth. I typically have about two transactions per month on average.

Based on the last published value of my Freedom Fund , that works out to about. Index fees are famously heralded for their low fees, and rightly so. Many active mutual funds charge a pretty hefty fee to pay their directors and fund managers for the fund management services they provide, whereas index funds typically are not as actively managed.

VIG, for instance, charges an annual management fee of just. So, this must be the better way to go, correct? Not so fast. I plan to retire from full-time work by 40 years old and shift from investing in dividend growth stocks to living off my dividends at that time. My dividend income at this point completely covers my expenses and I now consider myself financially independent. I stop buying stocks, and shift my attention to writing, spending time with family and friends, volunteering my time, reading and casually checking in on my portfolio to make sure everything is humming along.

Hmm, I already own all five. This compares extremely favorably to the 2. That 1. What about dividend growth? Many of the companies I invest in have lengthy histories of dividend growth, often well above the rate of inflation. Just recently, APD raised the dividend by Wal-Mart Stores, Inc.

What about VIG? The results of actively managed portfolios are skewed by the relative skill of the investor. Tracking the results of actively traded portfolios assembled by an investor in accordance with his or her understanding of an investment strategy isn't a whole lot better, even though it's "forward looking. Bad choices should get cut off - even at a current loss - minimizing their effect on the overall performance of the portfolio.

So while most active portfolios should perform better than a static, "buy and hold" portfolio assembled at one point in time and studied for its performance going forward, that doesn't help too much in assessing the value of the investment philosophy underlying the investment choices. And I wanted to study the merits of the investment philosophy itself, not the skill of individual investors.

I have more comments on this below. So the problem presents itself: how do you formulate a study to assess the relative merits of DGI, HYI and Index investing that is not skewed by survivorship bias or the skill level of different investors? In the comments section of Dividend Pancake's article it was pointed out by several readers that the 11 investments included in that backstudy would not have been chosen 20 years before, making the conclusion pretty useless. I chimed in to point out that a "front" study based on Dave Van Knapp's actual portfolio from 10 or 20 years in the past would have been more valuable.

And that got me thinking. Why not find a representative list of the kind of investments a DGI or HYI investor would actually have made in , just prior to the market peak, prior to the financial crisis, and prior to the long economic recovery following the Great Recession, and then see how that selection of investments would have performed going forward, over the next 11 years?

So that's what this is. Some on the original list had merged, etc. I dug up its year end SEC schedule of the funds it held in Many had merged or otherwise become unable to track and were excluded; two had been dissolved but I was able to track their performance through to their ends, so they were included. Index fund. Buffett's Million dollar bet.

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