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9780132540209

Index Your Way to Investment Success

by ;
  • ISBN13:

    9780132540209

  • ISBN10:

    0132540207

  • Format: Hardcover
  • Copyright: 1997-10-01
  • Publisher: New York Inst of Finance
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Summary

Index funds have experienced explosive growth over the past 10 to 15 years, primarily from institutional investors. In this book, two investment insiders reveal why index funds are the way to go. Throughout the book, the emphasis is on developing a plan, implementing strategies, and gauging performance. Graphs. Online feature.

Author Biography

Walter R. Good, CFA, has managed institutional investments as both a plan sponsor and external investment manager. As a consultant to large institutional investors, he has worked with both private and public retirement funds as well as philanthropic organizations. He has served as managing partner of Capital Market Systems, president of the Mellon Universe Management Group, chairman of the pension investment committee of the Continental Group, Inc., and member of the Investment Advisory Panel for the Pension Benefit Guarantee Corporation. He is a co-author of two recent books: Active Asset Allocation: Gaining Advantage in a Highly Efficient Stock Market and Managing Pension Assets: Pension Finance and Corporate Financial Goals. Good is a member of the Association for Investment Management and Research (AIMR) and holds undergraduate and MBA degrees from the University of Chicago. Roy W. Hermansen, CFA, has been responsible for institutional assets as a plan sponsor, external manager and consultant. He has served as partner of Capital Market Systems, executive vice president of Mellon Universe Management Group, director of portfolio development at Continental Group, Inc., and as a security analyst specializing in technology stocks at a major investment counseling firm. He is a co-author, with Walter Good and Jack R. Meyer, of Active Asset Allocation: Gaining Advantage in a Highly Efficient Stock Market. He is a member of the Association for Investment Management and Research (AIMR). Hermansen holds degrees in electrical engineering and engineering physics from Lehigh University and an MBA from Columbia University.

Table of Contents

FOREWORD xi(4)
JOHN C. BOGLE
PREFACE xv
INTRODUCTION: HOW LESS BECOMES MORE 1(22)
Surging Index Funds 1(4)
Identifying the Benefits 5(4)
Using Index Funds as a Tool 9(2)
Flowering of a New Industry 11(4)
Individual Indexing 15(2)
How this Book Is Organized 17(6)
PART 1. UNDERSTANDING INDEX FUNDS 23(40)
1. INDEX FUND DESIGN
23(24)
Which Index?
23(1)
Differing Index Characteristics
23(3)
S&P 500 in Perspective
26(6)
Other Market-Value Weighted Indexes
32(5)
Appendix 1-1: S&P 500 Index
37(2)
Appendix 1-2: Wilshire 5000
39(1)
Appendix 1-3: Russell 2000
40(1)
Appendix 1-4: S&P MidCap 400 Index
41(1)
Appendix 1-5: S&P SmallCap 600 Index
42(2)
Appendix 1-6: Morgan Stanley Capital International (MSCI) Indexes
44(2)
Appendix 1-7: Lehman Brothers (LB) Aggregate Bond Index
46(1)
2. TURNING AN INDEX INTO A INDEX FUND
47(16)
Overview of Index Fund Operations
47(1)
Indexing for a Large Financial Institution
47(5)
Mutual Funds: Indexing for Individual Investors
52(3)
Portfolio Building Blocks
55(8)
PART 2. ASSESSING THE BENEFITS 63(70)
3. MEASURING THE COSTS
63(34)
First of Two Key Issues
63(5)
Narrowing the Expense Ratio
68(2)
Assessing Transaction Costs
70(7)
Pay Now or Pay Later
77(3)
Tax Savings
80(4)
Adding Up the Costs
84(11)
Appendix 3-1: Deferral of Capital Gains Taxes
95(2)
4. INDEXING THE BOND MARKET
97(10)
Growing Segment of Fixed Income Market
97(2)
Index Fund Advantage
99(8)
5. HOW "DUMB" MISTAKES MAKE "SMART" MARKETS
107(26)
Assessing the Opportunity
107(7)
Gauging the Results of Active Investing
114(4)
Explaining the Paradox
118(9)
Active Investing in "Smart" Financial Markets
127(6)
PART 3. INVESTING IN AN UNCERTAIN WORLD 133(78)
6. DEVELOPING THE PORTFOLIO PLAN
133(24)
Balancing Risk and Reward
133(6)
How Much Return?
139(4)
How Much Risk?
143(5)
Choosing the Right Portfolio
148(6)
Appendix 6-1: Underlying Data for Stocks, Bonds, and Bills
154(1)
Appendix 6-2: Risk Calculation
155(2)
7. PUTTING INDEX FUNDS TO WORK
157(34)
Implementing the Marker Portfolio
157(4)
Diversifying with Index Mutual Funds
161(10)
Adjusting the Plan
171(11)
Appendix 7-1: Index Funds Available to the Individual Investor
182(4)
Appendix 7-2: Index Fund Tracking Error
186(5)
8. OUTSMARTING THE INDEXES
191(20)
Departing from the Index Fund Portfolio Plan
191(1)
Exploring Alternatives
192(3)
Controlling Risk
195(10)
Active Investing in an Index Fund Framework
205(6)
PART 4. RESPONDING TO CHANGE 211(52)
9. GAUGING PERFORMANCE
211(16)
Maintaining Perspective
211(4)
Measuring Total Portfolio Performance
215(6)
Identifying Sources of Positive and Negative Returns
221(4)
What to Do about Taxes
225(2)
10. MAKING IT HAPPEN
227(26)
How to Get Started
227(1)
Addressing the Key Decisions
228(3)
Obstacles that Get in the Way
231(9)
Appendix 10-1: Weighing Capital Gains Tax Liability against the Index Fund Cost Advantage
240(11)
Appendix 10-2: Redirection of Dividend Reinvestment
251(2)
11. WHY INDEXING?
253(10)
Two Contrasting Points of View
253(1)
Revisiting the Record of Active Investing
254(1)
Daunting Challenge
255(1)
How Index Funds Gain Advantage
255(1)
Ambitious Standard for Active Investing
256(1)
How to Make Use of Indexing
256(1)
"Do's and Don'ts"
256(2)
Future of Individual Indexing
258(5)
INDEX 263

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