The Finch Formerly Known As Gold

21 November 2005

I have $4 in pennies on my desk

Brad Warbiany's Mutual Fund Theory of Government:

Republicans are bond investors. They think government can offer certain expected returns (services) to you. Those returns aren't very big, but they're dependable. The Republican theory of government is to not promise too much, but not to screw it up either. Republicans view the goal of government as taking on a task they know it can handle, performing it adequately, and no more.

Democrats are actively-managed mutual fund guys. They say you're way too stupid to manage your own money. The only way you can hope to get rich is to place your trust in smart people like them. There are slick marketing campaigns to make you believe that they can manage your money much better than you can. They give you confusing sheets of investment performance over time to make you think they're going to make you rich beyond your wildest dreams, but in reality, they aren't all that good at what they do.

Libertarians are index-fund guys. The key point between Libertarians and Democrats is that actively-managed mutual funds are all marketing and no performance. The S&P 500 as an aggregate outperforms 85% of actively-managed funds every year. And the systems the Democrats offer arenít in the other 15%. Index funds are a simple system, based on performance, of understanding underlying truths about a system and setting up rules to make the most of those truths. An index fund looks at the way the market works, sets up rules of how to buy and sell individual stocks in a simple, hands-off approach, and then just sit back and watch the market work.

Aw, come on, surely somebody got rich following the Democrats.

Actually, there is a place for actively-managed funds, if you're (1) not really sure about what you're doing or (2) if you wish your portfolio to be cleansed of evil, nasty, horrible companies like these:

  • Tobacco vendors.
  • Defense contractors.
  • Distillers and brewers.
  • Gaming operators.

On the other hand, you might want to concentrate on those particular industries in the hopes of a better return.

Disclosure: I made no changes to the investment options for my 401(k) account this year.

Posted at 3:43 PM to Political Science Fiction

I'd like to invest in the VICE fund just on principle.

Posted by: Rachel at 7:09 PM on 21 November 2005