NetNews Usenet Archive 1993 #3/NN_1993_3.iso/spool/misc/invest/16797

Internet Message Format | 1993-01-21 | 1.6 KB

Path: sparky!uunet!gossip.pyramid.com!pyramid!pyrps5.eng.pyramid.com!jmuth
From: [e-mail] (John Muth)
Newsgroups: misc.invest
Subject: Re: Index funds
Message-ID: <[e-mail]>
Date: 21 Jan 93 18:23:54 GMT
References: <[e-mail]> <[e-mail]> <[e-mail]>
Sender: [e-mail]
Distribution: usa
Organization: Pyramid Technology Corporation, Mountain View
Lines: 27

In article <[e-mail]> [e-mail] (E. T. Peterson(Eric)) writes:
>In article <[e-mail]>, Dave Dodson <[e-mail]> writes:
>
>|> An index fund always will trail its index
>|> because the fund has expenses and must retain cash on hand, but the
>|> index doesn't.
>
>A small point:
>"Cash on hand" will cause the index fund to do better than the index
>during a year in which the index declines.

I doubt it. An index fund, by definition, attempts to stay fully invested
in whatever market the index covers. Any cash on hand is so small compared
to the equities that, even in a declining market, the income from the cash
won't cover the fund expenses. Therefore the index fund will STILL trail
the index.

-John Muth
>
>*********************************************************************
>Eric Peterson                  The sooner you fall behind,
>Research Geophysicist          the more time you'll have to catch up!
>[phone]
>[e-mail]
>*********************************************************************