conversation: User (NatashaAlexandrov): "It seems like everyone is switching to Vangaurd's index funds. The arguments it that index funds always beat the market and have a very low cost.\n\nI listened to the podcast that someone posted on here a while back and it was very clear that they thought index funds were the best option.\n\nIn an effort to break heard mentality I wanted to hear from people who don't just invest in index funds.\n\nWhat do you do instead?\n\nWhy do you chose this option(s)?\n\nWhat do you say to the people who claim actively managed funds are to expensive and rarely beat the market?"
  Self: "It is not accurate to say their index funds beat the market, as they are set up to match the market not beat it. What is more accurate to say is that, when costs are factored in, Vanguard index funds beat the vast majority of comparable actively managed funds. Plenty of managed funds do beat the market, but when you factor in their costs, you end up with less than a low cost passive index fund.\n\nI believe the Freakonomics Radio podcast recently covered this topic with an interview with Vanguard's creator, it's an interesting listen. None other than Anthony 'The Mooch' Scaramucci makes an appearance to argue against passive index funds, and he and other contrarians actually make a very interesting point: That without active buyers and sellers, market prices will become less accurate and potentially create massive risks of bubbles and price collapses (I'm heavily paraphrasing due to mediocre memory). Someone else says (again, heavy paraphrasing) "I'd tell people I like to go with Vanguard, and people I don't like to go with an actively managed fund, because a healthy market needs them."\n\nAnyway, what I do:\n1) The majority of my money is passive, and I keep that in Vanguard-type low cost funds.\n2) I occasionally pick stocks, because passive investing is boring. If I feel strongly about a company, I might move some of the Vanguard funds to a particular stock for mid term investing (less than five years).\n3) Vanguard doesn't cover all possible segments, so if there's some segment I really like but I don't have the confidence to pick a specific stock, I might buy a managed fund in that segment."
  User (NatashaAlexandrov): "&gt; 3) Vanguard doesn't cover all possible segments, so if there's some segment I really like but I don't have the confidence to pick a specific stock, I might buy a managed fund in that segment.\n\nThis is really interesting. Can you elaborate on what you mean by that? Like what kind of investments would you make outside of Vanguard?"
  Self: "Vanguard's low cost index funds are generally the high level segments, like Energy, or Health Care, or Large Cap. In some cases it's a little more granular, like High Dividend Large Cap, or U.S. Growth Large Cap. But they don't get much more granular than that.\n\nFor example, say I want to invest in wireless technologies. I think the closest Vanguard fund is a telecommunications fund (VTCAX). But I don't want my investment spread out over companies that aren't focused on wireless, which I would be doing through this fund. So I find this *managed* mutual fund that specifically focuses on wireless (WIREX). I'd be gambling the more expensive fees on the belief that I can make up the fees and more by focusing on wireless versus all of telecomm."
  User (NatashaAlexandrov): "That makes a lot of sense. Thanks for the info."
  