ETF - talk me off the ledge

[Roadmap2Retire]

(02-05-2017, 11:28 PM)crimsonghost747 Wrote: Further discussion related to beating the benchmark: Profit correlates with risk. So if you build a safer portfolio than the benchmark index you are comparing to, then you'll most likely also make less profits over the long term. In fact I'd say that the easiest way to beat the index is to invest in a single company... hundreds of companies that beat the index on a permanent basis. Two of my top 3 companies would have beaten the index on almost any stretch of time between 2007 and now. (10 years. Way before I even started investing) And the one that misses is a REIT which I bought for the high yield and monthly payments. My top company (RTN) would have generated more than TWICE the profits of the S&P500 in the past 10, 5 or 2 years while the profit for the past 1 year would have been lower. (those 4 time scales are what yahoo gives me straight off the bat.) But it's all about the risk / reward ratio.

Overall my portfolio is dragging behind the S&P500. I don't compare to it though but I did take a look just for the purpose of this post. So would I be currently better off if I had put it in index funds? Yes. Would I be as safe as I am now? I don't think so.
What if I put it all in RTN? I'd be rolling in money like Scrooge McDuck but that would have happened with way more risk than I was ready to take.

Like I said I don't even compare to any index, simply because my goals are more geared towards limiting downside and increasing dividend income. And those goals probably mean that I won't reach the profit of S&P500 over the long term because I have chosen a less risky method. I guess what I'm saying is that it's more about finding a good risk/reward ratio for myself rather than comparing my results with a set benchmark.

I dont think I understand your thought process. Your portfolio is dragging behind the S&P500, but you choose to ignore it because you dont like to compare and contrast your investing methodology with others. Especially when the alternate (index fund via ETFs) provides with a lower cost, and lower risk (via instant diversification). If you are investing for the fun, I get it....researching companies and making stock picks that end up as winners gives us a huge rush that is not possible via index funds. 

Also, when you say that you could have made much larger returns by putting in all your money in one company, that contradicts your statement that you are taking lower risk. You are taking a *much larger* amount of risk. 

I am not saying that index funds are the perfect method to invest. There are lot of faults and problems with index funds -- In fact, I have beef with how the indexes are built -- be it DJIA (based on stock price) and S&P500 (based on MktCap), which is inherently a flawed method to build your yardstick. This is why other alternate indexes are being built and something like factor-based investing is getting more interesting...but for now, it remains an experiment and I will be keeping an eye on it until we get some more performance data.