Valuation-Informed Indexing vs. Passive Investing: Which Is Better?

Jacob at the My Personal Finance Journey blog has posted a blog entry tiled Valuation-Informed Indexing vs. Passive Investing: Which Is Better?

Juicy Excerpt #1: While Valuation-Informed Index Investing may have outperformed passive investing in most previous historical periods, evidence of it not performing as well in recent years is enough to keep me as a passive investor, at least until VII is refined.

Juicy Excerpt #2: Valuation-Informed Index Investing has great potential because it greatly reduces the risk to investor returns. Even though VII failed to outperform passive investing in my analysis, it also provided much less risk, as evidenced by the sharp decrease in standard deviation of the portfolio value over time. For example, VII Portfolio 1 provides a slightly lower return of 185% over the time period analyzed (compared to the passive investing portfolios). However, the portfolio also has 34%, 55%, and 21% less risk (standard deviation of portfolio value) compared to the 60/40, 75/25, and 50/50 passive portfolios, respectively.

Juicy Comment #1: If there is someone reading these words who has the ability to bring this post to the attention of John Bogle, I think it would be a huge plus if he or she would let him know about it and would ask him if he would be willing to comment. Bogle said in an interview with Index Universe that he believes that Valuation-Informed Indexing can work. It would be a huge step forward if he would provide us with a more detailed statement of his thoughts about the concept.

Juicy Comment #2: Bogle has said that Valuation-Informed Indexing can work. That leads me to believe that I AM a Passive Investor. But I am banned from posting at the Bogleheads Forum. I think it is fair to say that that would cause many to conclude that I am NOT a Passive Investor.


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