By JLP | April 28, 2010
My post from yesterday raised some eyebrows and ruffled some feathers. I suppose I used a bit too much glamour when I used the word “smoked” in the title. I tend to do that sometimes when I want to draw attention to a post.
Some questions were raised about my methods:
Why did I choose a 10-year period? Well, I wanted to compare American Funds’ Investment Company of America with Vanguard’s S&P 500 Index Fund. My source for daily data is Yahoo! Quotes. Their data only went back to the mid-to-late 1990s. Since I was calculating the reinvestment of dividends on my own, I wanted to have daily data.
Did I “data mine?” No, I did not. I did not search for a mutual fund that would support my position (because I did not have a position). I would have posted the results REGARDLESS of the outcome. As I stated in my previous post, I chose American Funds’ ICA because I was familiar with them and knew that they had been around a very long time.
Since I didn’t have daily data going further back than the mid-1990s, I decided to switch to annual data provided in the ICA’s Annual Report and data that I have for the S&P 500 Index*. Here is a year-by-year comparison (you can click on the graphic to see a bigger version):
Those figures do not include a sales load. They also do not include a management fee for the S&P. So, to get a little more accurate picture, I assumed a $1,000 investment in each and deducted the maximum up-front sales charge of 5.75% for ICA. Then, I calculated the returns for the last 5, 10, 20, 30, and 40 years. Here are the results:
Remember, these numbers DO NOT include any sort of management expense for the S&P Index, which favors the index. Another thing to note is that looking at the data, I’m sure there were rolling periods in which the index beat ICA.
These figures all go to hell if you look at dollar-cost averaging since each investment in ICA would take a haircut. It would be hard for ICA to overcome that obstacle. That’s why I would ONLY consider a load mutual fund if I was investing a lump sum.
*Although I refer to it as the S&P 500 Index, the index was composed of 90 stocks prior to 1957.