An Index Fund or a System?

An Index Fund or a System?

June 28, 2024

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Pop quiz, hot shot!

You have two choices for your next long-term investment (five years or more).

Here’s choice #1:

This turns a $1k investment and $400 a month contributions into $37k.

Here’s choice #2:

This turns the exact same money into $52k.

Which would you choose?

The real-world answer would be obvious and unanimous.

Everyone would choose option #1.

Why?

Why would everyone choose to make way less money?

Because option 1 is an index fund and option 2 is a trading system.

Why do people believe so vehemently in index funds?

Because they see the famous charts online that seem to always go up.

But wait a second.

The trading system in Option 2 uses an index.

Anything good about SPY or DIA or QQQ has to also be good about our Buy Monday system on the Dow.

Right?

Both are long-only. Both trade indexes.

But one makes a lot more money. And could make even more with more aggressive compounding.

It’s a trust issue, though.

People like charts that go back many years. And a buy-and-hold index chart goes back many years.

However, here’s a Report using Portfolio Architect on the Buy Monday system going back to 2000 (24 years):

This uses the YM.D instead of the micro version and it only trades 1 lot each time.

Here’s the Curve:

Hmm, doesn’t that look like the charts we see from the index funders?

The only difference is that this one makes more money.

As a wise man once said, “The truth knocks on the door and we say, ‘Go away, I’m looking for the truth,’ and so it goes away. Puzzling.”

Puzzling indeed.

Talk to you soon.

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Disclaimer:
It should not be assumed that the methods, techniques, or indicators presented in these products will be profitable or that they will not result in losses. Past results are not necessarily indicative of future results. Examples presented on these sites are for educational purposes only. These set-ups are not solicitations of any order to buy or sell. The authors, the publisher, and all affiliates assume no responsibility for your trading results. There is a high degree of risk in trading.

HYPOTHETICAL OR SIMULATED PERFORMANCE RESULTS HAVE CERTAIN INHERENT LIMITATIONS. UNLIKE AN ACTUAL PERFORMANCE RECORD, SIMULATED RESULTS DO NOT REPRESENT ACTUAL TRADING. ALSO, SINCE THE TRADES HAVE NOT ACTUALLY BEEN EXECUTED, THE RESULTS MAY HAVE UNDER- OR OVER-COMPENSATED FOR THE IMPACT, IF ANY, OF CERTAIN MARKET FACTORS, SUCH AS LACK OF LIQUIDITY. SIMULATED TRADING PROGRAMS IN GENERAL ARE ALSO SUBJECT TO THE FACT THAT THEY ARE DESIGNED WITH THE BENEFIT OF HINDSIGHT. NO REPRESENTATION IS BEING MADE THAT ANY ACCOUNT WILL OR IS LIKELY TO ACHIEVE PROFITS OR LOSSES SIMILAR TO THOSE SHOWN.