Provided the security that you chose is run competently, your tracking error with respect to the the index will be small and so low-variance, but the returns themselves can be as high-variance as they like.
This is what what I meant by “low variance centered on the set mean,” as I assumed the set mean was a stochastic object (with the variance that implies). Similarly, you can read “high variance” about the personal taste portfolio as “high tracking error variance,” which as you point out may be the result of low absolute variance in returns. Holding cash has a high-variance tracking error relative to the S&P 500, even though cash is zero nominal variance.
Given everything else equal, which it never is.
What does it add to the conversation to point this out?
I don’t get the impression that this conversation is productive. I think if someone doesn’t want to become proficient at finance, their best way to invest money is to set aside part of their salary* and buy into VTSMX every month. I don’t think they need to know what “dollar cost averaging” is, or why index funds are better than actively managed funds, and I think that crude heuristic arguments (“on average, money managers subtract value, you should expect to be average”) are the right way to convince them to invest this way.
As of yet, I don’t think I’ve seen you make a positive recommendation, which strikes me as worse than useless for a PSA thread. If finance is hard, then what?
*I feel the need to point out that I understand not everyone has a salary.
I’ve said it before—my point is that there are no good general-purpose universally-applicable recommendations for personal investing. They do not exist.
Certainly there are not-horrible recommendations. Investing in VTSMX is one of them. Putting your money into T-bills is another one. Putting it into TIPS is yet another one. Putting it into a 50-50 mix of high-grade corporate bonds and Russel 3000 is yet another one. Etc., etc.
All of these are not horrible. But none of them is particularly good or a good fit for everyone.
It’s like asking “what kind of food should I eat?” There are many not-horrible answers to it, starting with “follow the US government’s food pyramid”. But it’s not a particularly good answer and there is no single universal answer. People are too different for that. Same with investing—no generic answer is good enough.
However I agree that this particular chain of exchanges got too long. Your arguments seem incoherent to me and, no doubt, mine seem obtuse to you. If I get to writing a post on introduction to thinking about investing this conversation might continue...
This is what what I meant by “low variance centered on the set mean,” as I assumed the set mean was a stochastic object (with the variance that implies). Similarly, you can read “high variance” about the personal taste portfolio as “high tracking error variance,” which as you point out may be the result of low absolute variance in returns. Holding cash has a high-variance tracking error relative to the S&P 500, even though cash is zero nominal variance.
What does it add to the conversation to point this out?
I don’t get the impression that this conversation is productive. I think if someone doesn’t want to become proficient at finance, their best way to invest money is to set aside part of their salary* and buy into VTSMX every month. I don’t think they need to know what “dollar cost averaging” is, or why index funds are better than actively managed funds, and I think that crude heuristic arguments (“on average, money managers subtract value, you should expect to be average”) are the right way to convince them to invest this way.
As of yet, I don’t think I’ve seen you make a positive recommendation, which strikes me as worse than useless for a PSA thread. If finance is hard, then what?
*I feel the need to point out that I understand not everyone has a salary.
I’ve said it before—my point is that there are no good general-purpose universally-applicable recommendations for personal investing. They do not exist.
Certainly there are not-horrible recommendations. Investing in VTSMX is one of them. Putting your money into T-bills is another one. Putting it into TIPS is yet another one. Putting it into a 50-50 mix of high-grade corporate bonds and Russel 3000 is yet another one. Etc., etc.
All of these are not horrible. But none of them is particularly good or a good fit for everyone.
It’s like asking “what kind of food should I eat?” There are many not-horrible answers to it, starting with “follow the US government’s food pyramid”. But it’s not a particularly good answer and there is no single universal answer. People are too different for that. Same with investing—no generic answer is good enough.
However I agree that this particular chain of exchanges got too long. Your arguments seem incoherent to me and, no doubt, mine seem obtuse to you. If I get to writing a post on introduction to thinking about investing this conversation might continue...