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The following are excerpts from the article Bogle And Malkiel Fight Back:
When WisdomTree Investments launched its first 20 dividend-weighted exchange-traded funds (ETFs) in June, CEO Jonathan Steinberg didn’t hold back. Calling market-cap weighted indexes “flawed,” Steinberg said that his funds “had the potential to change the way investors think about indexing and investing.”
Weighting stocks by dividend, Steinberg said, as opposed to market capitalization, was simply “a better way to index.”
…
Writing on the op-ed pages of the Wall Street Journal, John Bogle and Burton Malkiel issued a fiercely worded bromide against “fundamental indexing,” calling it little more than a fad made possible by the tremendous outperformance of value stocks in the wake of the Internet bubble. Fundamental indexing’s large-scale outperformance, they suggest, is sure to be dashed … perhaps soon … against the rocky shores of reversion-to-the-mean.
“[W]e need to be cautious before accepting any “new paradigm” that implicitly suggests that the “old paradigm”— reflected in more than $3 trillion of capitalization-weighted index investment funds—is in error,” they wrote.
…
Costs Matter
Bogle and Malkiel start by pointing out the central, tautological truth of capitalization-weighted indexes: Investors as a whole must earn the same return provided by a capitalization-weighted index.
“We can not live in Garrison Keillor’s Lake Wobegon, where all the children are above average,” they write. “For every investor who outperforms the market, there must be another investor who underperforms.”
In fact, the universe of investors in aggregate must under-perform the benchmarks because you must deduct the fees and taxes that come with investing in the market. And that, say Bogle and Malkiel, is where fundamental indexes start to suffer.
The pair note that the expense ratios for publicly available fundamental index funds range from 0.49 percent to 1.14 percent. Although the WisdomTree ETFs cost significantly less than that, even their low fees (some as low as 28 basis points) are still significantly higher than traditional index strategies. The FTSE/RAFI U.S. 1000 PowerShare comes in at 60 bps.
Moreover, the pair notes, fundamental indexes will tend to experience higher turnover than cap-weighted indexe s , thanks to weighting adjustments mandated by changes in the fundamental factors. In cap-weighted indexes (at least, in total market cap-weighted indexes), those adjustments are made automatically with no cost to investors tracking the index.
Interestingly, the core backtested data published by WisdomTree, Arnott and others do not reflect the impact of fees or taxes.
[Note : See post The next wave of indexing investing which discusses "fundamental indexing".]
“The founder and lead developer of singapore is Tamlyn Rhodes.”
While searching around for a hosting service, I came across one interesting web application named “singapore“. I was intrigued by the name and decided to look further. What I found was singapore is “an open source, multilingual, template-driven image gallery web application … quite a mouthful! It is written in PHP and is licensed under the GNU General Public License.”
As for why the name :
I am not sure if LKY is amused by this.
In June, I started adding international real estate funds into my portfolio. The assets are held in the taxable account. I first added the Alpine International Real Estate Equity fund (EGLRX) and followed by the Fidelity International Real Estate fund (FIREX). Both funds are nicely up by about 8% presently.
However, yesterday I had a rude shock with FIREX because it made a substantial distribution after the close of trading on Sept 8, 2006. The total distribution was $0.87, which is about 6% of NAV (NAV = $14.37 after the distribution). Of this, $0.48 is for short-term capital gains (the worst kind). This is the largest distribution the fund has ever made in its history.
When I was first considering this fund, I did examine the distribution history and I thought the distributions were quite manageable. Now, it appears that I was wrong. I am reconsidering my international real estate allocation. One option would be to skip it until a more tax-efficient vehicle comes along.
PS: SSgA has filed with the SEC to introduce the DJ Global ex-US Real Estate ETF. This should be more tax-efficient. 
Larry posted (5252 
the link to an article by the TIAA-CREF Institute on the tax efficient placement of investment assets. The paper is titled “Maximizing Long-Term Wealth Accumulation”. The paper discusses “the advantages of placing equities in taxable accounts and taxable bonds in tax-deferred acounts in order to maxmize tax efficiency.”
The idea of placing equities in taxable accounts and bonds in tax-deferred accounts is not new. The reason for this recommendation is due to the differential tax treatment of capital gains and interest income. In a taxable account, capital gains (long term) are taxed at a maximum of 15% while interest income are taxed at the income tax rate of up to 35%.
Now consider the fact that tax-deferred accounts are always taxed at the income tax rate of up to 35% at withdrawal, regardless of whether the gains come from capital gains or interest income. What this means is that if we keep equities in the tax-deferred account, the more valuable capital gains rate actually gets “converted” into income tax rate, an undesirable situation. On the other hand, there is no such disadvantage if bonds are kept in the tax-deferred account since interest income is taxed at income tax rate anyway. Therefore, bonds are ideally placed in the tax-deferred account and equities in the taxable account.
Placing equities in the taxable account also has some other benefits, like ability to perform tax-loss harvesting, foreign tax credit, and the eventual stepped-up basis for the heirs
There is yet another broker that offers deep discount trades — Marsco.com. The per trade fee (with no share limit) for this broker is $3.95. There is a minimum of $2500 to open an account, there is no inactivity fee and Marsco offers mutual funds for $15 per trade.
According to the domain registrar, Marsco.com has been registered for almost 10 years now, so this name is hardly new. However this is the first time I have heard of this discount broker.
I will try to do a comparison with Sogoinvest and Izone when I find to the time to get more information.
Without much fanfare, August 2006 turned out to be the second best month so far this year for my portfolio (the best month was January). The portfolio return was 2.19%. The strongest performers were U.S. real estate and international real estate: these gained about 4% this month. The rest of the major asset classes came in at between 1.5% to 3%. The poorest performer was Precious Metals and Mining equity, returning only around 1%.
Today, Vanguard celebrates 30 years of indexing with the original introduction of the First Index Investment Trust — now known as Vanguard 500 index fund — on August 31, 1976. It was the first index fund available to individual investors in the United States.
“The introduction of the First Index Investment Trust was one of the few truly seminal dates in the mutual fund industry,” said John J. Brennan, Vanguard chairman and CEO. “It offered the individual investor a broadly diversified, low-cost investment approach that wasn’t available before.”
The reaction to this momentous event from Wall Street was “a frown and a shrug”. Conventional wisdom said that only actively managed funds made sense for individuals. Why would anyone not try to beat the market?
Of course, now we know that history was re-written with the introduction of this fund. The Vanguard 500 index fund has also grown to become one of the largest funds in the world.
Below are some statistical snapshots of index funds:
I started investing with Vanguard in August 2001. So, this month also marks my 5 year anniversary of investing with index funds.
Note: The article “Indexing turns 30, and the revolution continues” appears on the Vanguard website HERE.
