"It’s the little details that are vital. Little things make big things happen." – John Wooden

In This Edition
Traditional vs. Non-Traditional Index Funds
Latest Podcast
Testimonial

One of the most common questions I get is about our recommendations of “actively managed ETFs.” Many of the ETFs we recommend do not qualify as index funds in some of the services who report performance. It is a very important difference and I fear my answers don’t satisfy many investors.

For several years I have wanted to add Mark Hebner as a Truth-Teller. Mark’s website, ifa.com has more educational information around building portfolios than any website I know. For some people it is too much information but Mark admits that most of his followers are engineers and other investors who make their investment decisions based on historical evidence. Mark recently recorded (he isn’t the moderator) a video on the differences between traditional and non-traditional index funds.

Here is what ChatGPT has to say on the topic:

Advantages of Non-Traditional Index Funds

Potential for Higher Returns

By weighting stocks based on factors like value, momentum, quality, or low volatility, non-traditional index funds can outperform standard market-cap-weighted indexes over time.

Better Diversification

Market-cap-weighted funds often become concentrated in a few large companies. Alternative index funds (e.g., equal-weighted or factor-based) can spread risk more evenly across holdings.

Reduced Concentration Risk

Traditional indexes can become dominated by mega-cap stocks (e.g., S&P 500 heavily weighted in tech giants). Non-traditional indexing avoids overexposure to any single company or sector.

Risk Management

Some non-traditional funds focus on minimizing volatility (low-volatility strategies) or adjusting allocations based on economic conditions to reduce downside risk.

Factor Exposure

Smart beta funds target specific investing factors (e.g., small-cap, value, quality, dividend growth) that have historically provided better risk-adjusted returns than the overall market.

Lower Turnover than Active Funds

While they rebalance more frequently than traditional index funds, non-traditional index funds still generally have lower turnover than actively managed funds, leading to fewer capital gains taxes and lower costs.

Alternative Weighting Strategies

Some funds use fundamental measures (revenue, earnings, dividends) instead of market cap to determine weightings, which can avoid overvaluation risks present in cap-weighted indexes.

Potential Trade-Offs

Higher Fees: Non-traditional index funds tend to have slightly higher expense ratios than standard index funds.
Tracking Error: Since they don’t follow traditional indexes, their performance may deviate significantly from major benchmarks.
Complexity: Understanding factor-based strategies requires more research compared to traditional index investing.

Latest Podcast- Bootcamp 2 -The Ultimate Buy and Hold Portfolio 2025 Update

This is the second presentation in the Boot Camp Series. Click for video.

The first presentation (Stocks Vs. Bonds) will be available in the next two weeks.

This presentation makes the case for diversifying a portfolio using multiple equity asset classes.

Paul uses 4 set of tables to make his case:

A1a: Ultimate Buy & Hold Equity Portfolio (50% US/50% Int'l)

A2a: Alternative Equity Portfolio Tables (50% US/50% Int'l)

A1b: Ultimate Buy & Hold Equity Portfolio (70% US/30% Int'l)

A-2b: Alternative Equity Portfolio Tables (70% US/30% Int'l)

Paul also mentions the recent video/podcast that addresses the Sound Investing Portfolios.

Bootcamp #3 Sound Investing portfolios- podcast

Bootcamp #3 Sound Investing portfolios- video

The first presentation (Stocks Vs. Bonds) will be available in the next two weeks.

Bootcamp 2025 Testimonial

"Paul & Co., I will post this every time you put up a new video, but thank you for everything you guys do."

Bootcamp 2 -The Ultimate Buy and Hold Portfolio 2025 Update

Which total market fund is best for long-term investors?

Bootcamp 2 -The Ultimate Buy and Hold Portfolio 2025 Update

In This Edition Traditional vs. Non-Traditional Index FundsLatest PodcastTestimonial

In This Edition
Traditional vs. Non-Traditional Index Funds
Latest Podcast
Testimonial