Like so much, this depends on what you want the fund to do. If you want current income, VDIGX and PRBLX aren't for you. If you want a long term hold focusing on quality dividend growth for capital appreciation, they're both very good. Not really familiar with it, but HULIX costs too much to be an effective dividend oriented fund.
The differences in construction between VIG/VDAIX and VYM/VHDYX or DVY are instructive. If what you want is high yield that opens up other doors.
Edit: Also check out ted's link to the Jason Zweig article on dividend growth funds and how they might behave in different markets.

@old_skeet, I am confused by your use of yield to evaluate a world allocation fund for a fit. What does this have to do with benchmarking?
The idea of a benchmark is to see how your portfolio is doing relative to the benchmark as a relevant proxy for your portfolio and whether what you are doing is working or hurting and whether it is time/cost efficient.
You use the Lipper balanced index for this purpose not because this index has a good yield but you see it as a goal of a benchmark to compare your portfolio against. No doubt, it gives you great joy to beat it as you keep mentioning it.
But as I have expressed before, that is a flawed benchmark for your portfolio and gives a false sense of achievement, in my opinion. The risk of the latter is legitimizing an approach (market timing activity around the edges in your case) that can blow up in some market conditions at worst and just waste time actively managing the portfolio (not to be confused with using active funds) at best. It is dangerous to associate this "success" with strategies such as the Leadership strategy you keep linking to or using it as a contrary indicator and will mislead people. It is the latter that prompted me to write my response.
The alpha as @MikeM suggests may exist only because of the benchmark chosen or actually negative compared to the suggested benchmarks. This is not very different from the numerous articles on lazy portfolios all of which try to establish legitimacy by stating how they beat S&P 500 which is the wrong benchmark for them. Using Lipper balanced index is not as bad but also flawed for the type of diversification you have. In the same way, use of the average over all active funds is flawed for its use to make assertions about active funds in general.
The number of funds has nothing to do with it other than the amount of time and attention one has to spend tending it for dubious advantage.
Your portfolio is behaving like a good world allocation fund because of its diversification and your playing with it may even be helping in making up somewhat for the disadvantages of over-diversification.
You have mentioned using AC Capital Income builder as one of your funds which I had mentioned as another candidate for a benchmark. It is the same thing as saying your entire portfolio is behaving the same way as just this one fund. It doesn't really matter much which one of the suggested benchmark you choose for that purpose. The differences between them in total return is not practically significant given the market variability. But all of them point to the same thing regarding the behavior of your portfolio.
As to using just one fund in practice, it is the extreme opposite of using some 50+ funds and was suggested as a contrast.
@expatsp has the correct observation regarding idiosyncratic fund risk... to some extent. However, not as much of a concern in funds like the AC ones suggested because of the large team structure but if one were concerned, one could diversify between the couple of funds suggested. But there is no free lunch. It is at the cost of lowering the performance to somewhere between their individual performances just to get rid of a small idiosyncratic risk unless you were betting on volatile and eccentric managers. This may be a reasonable compromise in "small doses" but hard to rationalize 50+ funds for that reason.
Actively managing the portfolio can lower volatility by smart allocation choices primarily in prolonged bear markets. But this has nothing to do with the number of funds used. You can do this with a few funds as with a multitude. It is actually easier in the former to avoid upsetting the overall balance. Consider the extreme of selling part of a single fund portfolio to reduce beta exposure as opposed to which and how many of your funds you want to cut down without losing balance.

The number-of-funds question on this site seems like a matter of bedrock belief; I don't think anyone will convince anyone else.
But let me put a thought experiment out there. Obviously, your best possible strategy is to find the single best fund out there and put all your money in it, but step one, finding the single best fund, is hard to execute.
Yet there are a lot of funds that have consistently outperformed over the long run -- 528 great owls according to this site, including 58 that have outperformed over a twenty year period. If one were to choose 10 or 20 or 52 of those funds, might not one have a good chance of outperforming with lesser volatility? You aren't going to knock the ball out of the park with so many funds, but if you can get, say, an extra 1% a year, that would really add up over 20 years, and your risk from a single manager flaming out becomes minimal.
That seems to me to be what Skeet is doing: choosing a whole bunch of excellent funds and getting slight but steady outperformance with lower volatility. Am I right, Skeet?
I don't have the math to back this up, so cman or anyone else who wants to correct me, I will listen respectfully if you gently tell me why I'm off my rocker.
FWIW, I have 15 funds. Although 2/3 of my fund assets are in three (Bridgeway, Fairholme, and Primecap), so the others are kind of a hobby, I do think I have too many funds for my purposes. I intend to concentrate further as I go forward, but big capital gains are a pleasant reason for why that's tricky.

Hi Cman,
In revisiting your suggestion to use American Funds Global Balanced Fund (GBLAX) I have again reviewed the fund and I am again responding to you as to why I feel it was/and is not a good fit. In the Growth & Income Area of my portfolio in its Global Hybrid sleeve I have three funds one of them being American Funds Capital Income Builder (CAIBX). It has close to a four percent yield and over the past three year performance period it has out performed Global Balanced. Again, CAIBX has about a 4% yield vs. GBLAX’s yield of about 1.6%. The sleeve itself generates a yield of about 4.5% on current valuation and well above that on amount invested at about 5.5%.
If I were to use only one fund it would not be any of the above but it would be LABFX which is a Lord Abbett fund. It has a yield of about four and one half percent and it style box distribution is more in line with that of my portfolio along with its asset allocation. Plus, my portfolio’s yield matches up better with it than the others as it kick off better than five percent yield on amount invested and a little above 4% on valuation. Again, your GBLAX form a yield stand point falls way short at only about 1.6%.
In relation to my portfolio … If it looks Biblical ... Well it is as it has four major areas of asset holdings just as there are four seasons usually found in most places on Earth (There are exceptions). They are the Cash Area, the Income Area, the Growth & Income Area, and the Growth Area. In keeping with there being twelve months in the year there are also twelve sleeves within my portfolio … and, in keeping with there being fifty two weeks in the year there are about that number of mutual fund position also within the portfolio. Thus far it has worked well for me and I plan to keep it configured as it is.
In my using of technical analysis … I do use it, but I have my codes set to proportion numbers that are found in the great cathedrals that have been constructed through time. These numbers are readily available to those that wish to do the research.
Again, Cman, I reject your candidate GBLAX to be used as an Index to benchmark my portfolio.
Respectfully,
Old_Skeet

There should be something available within their alphabet soup (the thing I don't like about American Century) amongst the Global Balanced or Capital Income Builder funds.
GLBLX or HCORX (if available at your broker) are good alternatives in this global allocation category.

Wednesday, May 28, 2014
Editor's Corner
Stocks At New Highs, Or Not
Ron Rowland
There are numerous market benchmarks, and depending on which one you follow, the market may or may not be at a new high. The Dow Jones Industrial Average is probably the most widely “known” stock index in the world, but it didn’t close at a new high yesterday, although it was less than 40 points away from doing so. Given that 100-point swings are common for this index, and its actual high occurred just two weeks ago, it is acceptable to say the Dow is trading at all-time highs.
The S&P 500 is the most widely “tracked” index in the world. It finished Friday, yesterday, and today at all-time closing highs. Everyone loves round numbers, and the S&P’s flirtation with the 1900 level the past couple of months became reality last Friday. Both the S&P and the Dow recovered their financial crisis bear market losses in early 2013. Therefore, being in new high territory is not a recent event for these two indexes but has been the status quo for more than a year.
Other popular indexes are unable to make similar claims. The Russell 2000 Index of small cap stocks was hitting new highs for most of 2013 and into the first quarter of 2014. It then experienced a 9% correction, and its recent upswing still leaves it more than 5% shy of a new record-high. The plunge taken by the Nasdaq Composite Index early this century remains the stuff of legend. It has been more than 14 years since the Nasdaq has registered a new high, and it needs another 19% gain in order to erase its deficit.
U.S. stocks account for only 48% of worldwide equity capitalization, making the inclusion of international indexes mandatory to this discussion. The most popular benchmark of foreign stock prices is the Morgan Stanley Capital International Europe, Australasia, and Far East (“MSCI EAFE”) Index. It established an all-time high nearly seven years ago and needs another 22% advance to recover from the financial crisis. If you add in the seven years of dividends, the gap is almost closed. The lifetime high for the MSCI Emerging Markets Index coincided with the EAFE Index back in October 2007. From a percentage perspective, emerging market stocks need to gain about 29% before they are again at new highs.
Depending on your benchmark, possibilities range from stocks trading at new highs for more than a year to needing gains of another 29% before reaching a new high. The next time your favorite news outlet declares the stock market closed at a new high, be sure you know which index they used for the declaration and understand not all markets are able to make the same claim.
Sectors
All sector categories but one gained momentum since our last update. Real Estate maintains its top ranking for a second week with Energy duplicating the feat for second place. Technology was the big winner, jumping five places to land in third. Internet stocks and small cap semiconductor firms were the driving forces behind Technology’s surge. Telecom was the lone category failing to gain momentum, although it managed to hold its relative strength slide to just one slot. Materials held steady in 5th while Consumer Staples slipped two spots to 6th. Industrials, Health Care, and Utilities jockeyed positions, with Industrials now leading the trio. Financials and Consumer Discretionary were the only two sectors in the red a week ago. Today, they join the others on the positive side of the ledger.
Styles
The style categories were looking grim a week ago with more red ink (or pixels) than green. Micro Cap was registering negative momentum with three times the magnitude of Large Cap Value’s positive strength. This week, there is an across the board improvement, most notably among the weakest categories. Mega Cap moved up from second and wrestled the top spot away from Large Cap Value. The next four categories are in a dead-heat, with Large Cap Value, Mid Cap Value, Large Cap Blend, and Large Cap Growth all staking a claim on second place. The bottom six categories kept their same relative positions, although their momentum scores improved substantially. Small Cap Value managed to flip back to the positive side, and Small Cap Blend is on the verge of doing the same. Small Cap Growth and Micro Cap have been the two weakest styles and in the red for eight continuous weeks, but if they can hold on to their recent gains they could soon be in the green.
Global
The eight-week reign of Latin America came to an end this week with Emerging Markets ascending to the throne. The U.K. improved one position as Latin America’s momentum decline pushed it down to third. Canada and Pacific ex-Japan, two natural resource rich categories, held their relative positions. World Equity and EAFE swapped places, as did the U.S. and Europe. China gained strength, which counteracted the weakness of Latin America and helped Emerging Markets move to the top. Last week we discussed the disappointing performance of Japanese stocks in 2014. Apparently, Japan took our input as constructive criticism and put together four consecutive days of gains. In the process, it moved to positive momentum and erased its distinction of being the one category that has been seeing only red since January.
Note:
The charts above depict both the relative strength and absolute strength of various market sectors, styles, and geographic locations on an intermediate-term basis. Each grouping is sorted (top to bottom) by relative strength. The magnitude of the displayed RSM value is a measure of absolute strength, which is our proprietary method of measuring and reporting the intermediate-term strength as an annualized value.
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FYI: Copy & Paste 5/28/14: Cynthia Lin: WSJ
Regards,
Ted
A roaring rally in the prices of U.S. and European government bonds sent yields on Treasurys and other ultrasafe debt to 2014 lows, underscoring continued investor uncertainty over the pace of global economic growth.
In late afternoon trading, the 10-year U.S. Treasury note was up 21/32 in price to yield 2.443%, according to Tradeweb. The yield sank as far as 2.432%, its lowest level since June 2013. Bond yields fall when prices rise.
Demand was equally strong across the Atlantic, amid expectations that the European Central Bank could loosen monetary policy as soon as next week. The yield on 10-year German bunds fell 0.05 percentage point to 1.285%, the lowest since May 2013. The yield on 10-year U.K. gilts fell 0.09 percentage point to 2.549%.
Traders said the rally was driven by a surprise uptick in Germany's unemployment as well as typical month-end buying by fund managers to better align their portfolios with underlying indexes. A Treasury price rally in 2014 that has brought the 10-year yield down from 3% at the end of 2013 has left many fund managers holding smaller positions in U.S. debt than market benchmarks.
"The buying [in U.S. Treasurys] is being driven by relative value, rather than a need for yield," said Jake Lowery, portfolio manager at Voya Investment Management. "Global fixed income looks relatively expensive" compared with U.S. Treasurys.
Mr. Lowery points to the yield difference between U.S. and German 10-year debt. The U.S. offers about 1.15 percentage point in extra yield versus Germany, a historically large premium.
The wave of bond buying is the latest chapter in a yearlong government-bond rally that has surprised many investors and unexpectedly made safe debt one of the strongest-performing asset classes in financial markets.
Wednesday's rally wasn't limited to debt perceived as safest by investors. Yields on bonds issued by economically weaker European nations such as Spain, Italy and Portugal also declined. Spain's 10-year yield fell as far as 2.793%, a record low.
"We've had a rally in some other sovereign debt markets, making Treasurys look cheaper," said Gary Pollack, head of fixed-income trading at Deutsche Bank's private wealth-management u
Wednesday's Treasury gains add to Tuesday's rally in the face of upbeat U.S. economic data and fresh supply hitting the market. The fact that yields hover around the year's lows while U.S. economic data has been improving and growth is widely expected to accelerate has many bond analysts scratching their heads.
"We, who are usually some of the most bullish in the herd, are having a hard time reconciling generally OK data" with falling yields, said David Ader, government bond strategist at CRT Capital Group.
Many analysts point to the heavily skewed net trading position at the start of the year, with many investors betting Treasury prices would fall as the economic recovery picked up pace. Those bets were hit by a U.S. slowdown last quarter, causing many to unwind the so-called shorts.
"The market in general has been caught off guard by the strength in Treasurys this year," Mr. Pollack said, adding that he doesn't see yields sinking much further from here. Like many others, Mr. Pollack sees the 10-year yield ending the year around 3% as U.S. growth accelerates into year-end.
With many sellers crowded around the 2.42% mark on the 10-year note, traders don't see the yield falling significantly past that point without a new round of soft data.
J.P. Morgan's weekly Treasury client survey showed short positions ramping back up to 35% from 24% last week. Neutral positions fell from 66% to 48%, reflecting the fewest fence-sitters since October 2010.
A five-year Treasury auction Wednesday attracted mediocre demand, offering buyers the lowest yield on that maturity in six months. That followed a weak turnout at Tuesday's two-year note sale.
The soft auctions show how there are limits to the seemingly insatiable demand for U.S. Treasurys. While investors question the outlook on global growth, data at home have been improving, which raises worries among bond investors about the Federal Reserve increasing rates.
Fed officials, including Atlanta Fed President Dennis Lockhart overnight, have assured that rates will remain low for some time to come to support the economy. But should growth accelerate and inflation perk up, the rally in bonds now only sets up risks for a bigger selloff later on.
Rate-increase expectations for now are centered around mid-to-late 2015.

Some to consider:
AKREX Akre Focus (holds some larger firms as well)
ACRNX Columbia Acorn Fund (may be difficult to access, but there are many other classes of this fund) Bloated, but well run
GRSPX Greenspring - value bent blend fund with busted convertibles. Good risk managment.
LCORX Leuthold Core ("conservative" tactical asset allocation)
ICMBX Interpid Capital (value bent)
NBGNX Neuberger Berman Genesis
BUFTX Buffalo Discovery (heavy in tech and healthcare)

If drawdown/volatility/capital protection, etc aren't necessary for you, then I don't see a case for these active funds as opposed to just using index funds VMVIX and VISVX or equivalent from any fund family.
HIMVX loses more in down markets and does very little over an index in the long term. WSVRX isn't really a value fund and makes its performance look better in M* by diversifying across midcap and small growth. Besides, it doesn't have a long enough record to understand what it might do in a correction.
I would either stick with the pair of index funds or active managers that have a significant advantage over the indices in a full cycle. The YAFFX you have for large caps is a good example of that. Otherwise, you are just making these managers rich to hug the indices over long term.
FLPSX is an example of such an idiosyncratic fund that makes taking the manager risk worthwhile.
Or you could buy a small position into the really idiosyncratic OSFDX and keep the rest in index funds! That will likely give you better alpha than these huge index hugger active funds.

You make good points and I am slowly transitioning to individual stocks for the same reason. With a similar idea, I had posed a question on this forum about how to mine good low-turnover funds/ETFs for stock ideas. The challenge is how to deal with built-in gains from tax perspective, which is why new money is going to dividend stocks.

davidrmoran: RGHVX would not be considered a small-mid cap fund. As per David's write up on this fund:

Objective and strategy
RiverPark/Gargoyle Hedged Value seeks long-term capital appreciation while exposing investors to less risk than broad stock market indices. The strategy is to hold a diversified portfolio mid- to large-cap value stocks, mostly domestic, and to hedge part of the stock market risk by selling a blend of index call options. In theory, the mix will allow investors to enjoy most of the market’s upside while being buffered for a fair chunk of its downside.

I like it and I own it, but it uses hedging strategies.

@Bobpa: Though you might enjoy this 2012 article from WSJ on the fund's manager.
Regards,
Ted
Copy & Paste 11/16/12: Karen Johnson WSJ:
Francis Chou was a 25-year-old telephone repairman in Canada when he pooled 51,000 Canadian dollars from himself and six co-workers to start an investment club.
Thirty-one years later, Mr. Chou manages more than US$650 million for investors at his firm, Chou Associates Management Inc., and runs the best-performing bond fund in North America.
"It wasn't a big sum," Mr. Chou says of his stock-investment club. "But it did quite well."
Indeed. The Bell Canada co-workers—and some of their parents and friends who also invested early on with Mr. Chou—now are each worth more than $2 million.
RISK DIVERSE: A value investor at heart, Francis Chou runs North America's best
est-performing bond fund at his eponymous firm in Canada. Pawel Dwulit for The Wall Street Journal
Mr. Chou's trajectory to the top of the bond-fund world shows how investors are tweaking tried-and-true strategies to boost returns and overcome chronically low interest rates. When he was starting out, Mr. Chou largely stuck to stocks and the classic value-investing methods made famous by Benjamin Graham and Warren Buffett.
"The key idea was to find bargains, and if you could find bargains, you could do quite well," Mr. Chou says in an interview at his unadorned suburban office, far from the bustle of Toronto's Bay Street financial hub.
Bargain-hunting is a skill that Mr. Chou, now 56, honed as a boy. Born in India to Chinese parents, he wandered among food stalls in the small northern Indian city of Allahabad, clutching a shopping list from his mother.
Because there were no refrigerators, milk had to be bought almost every day. While his mother worked as a Chinese-language teacher, the young Mr. Chou would check for freshness, turning the glass bottles to see the milk's color and thickness. He tried to discern which were priced too high, those likely to spoil soon and others that were watered down.
In 1973, Mr. Chou's older brother immigrated to Canada. Mr. Chou joined him three years later, with $200 to his name. Eventually he landed a job as a repairman for Bell Canada. But when Mr. Chou stumbled on an article about value investing, he felt he had found his calling.
A year after starting his club in 1981, Mr. Chou went looking for value-oriented firms. He introduced himself to Bob Tattersall, then at Bolton Tremblay Funds Inc., a Montreal investment-counseling firm that later grew into Canadian fund manager Montrusco Bolton.
"I have two weeks' holiday," Mr. Chou said at the time. "Can I work for you for free?"
Mr. Tattersall said yes. He was impressed by Mr. Chou's insights and asked him to analyze auto-parts maker Kelsey-Hayes Canada Ltd.
"He did a good job on the report, and he was pretty excited at the end when we called the CFO, put him on the speaker phone and did a telephone interview," Mr. Tattersall recalls.
For Mr. Chou, the two-week stint was a chance to scout Bay Street investment advisers, especially those who shared his value-oriented philosophy.
In 1984, he left Bell Canada for good, joining investment firm Gardiner Watson Ltd. as an analyst, working beside value investor Prem Watsa. It was Mr. Watsa who pressed for his hire. "My boss asked me give him 10 minutes. We spoke for a half-hour. I have never been more impressed with anyone than I was in that half-hour."
At Mr. Chou's urging, Mr. Watsa bought control of teetering Markel MKL +0.48% Financial of Canada, the Canadian unit of insurer Markel Corp. It eventually became Fairfax Financial Holdings Ltd. FFH.T -0.11% , of which Mr. Watsa now is chairman and chief executive.
Mr. Chou worked at Fairfax for about a decade, managing the company's surplus cash while running the grown-up version of the investment club launched at Bell Canada.
While never abandoning his roots in value investing, Mr. Chou has branched into riskier bets such as corporate "junk" bonds, which have been luring many investors with returns that are much higher than Treasurys, at least for now.
His investors have been the beneficiaries. The Chou Income Fund, launched in 2010 with $500,000, has been tops among North American bond funds so far this year, with a return of 28%, according to financial-data tracker Lipper. In the same period, the Barclays U.S. Corporate High Yield Total Return index has gained 12%.
Most of the assets in Mr. Chou's fund, which now has $6.3 million under management, are corporate junk bonds, including some issued by MannKind Corp. MNKD +0.13% and Dex One Corp. He typically holds investments for a few years, singling out beaten-up assets that he expects to rebound in value. Junk-bond prices were especially tempting when he launched the fund, he says, but they have become more dangerous to play now as prices have climbed.
In 2004, Mr. Chou was named fund manager of the decade in Canada by fund tracker Morningstar Inc., MORN +1.28% and his Chou Associates Fund swelled in popularity, with assets under management topping $1 billion.
Mr. Chou is unrepentant about taking more risks, but the financial crisis was a painful reminder that even successful investment strategies can be derailed quickly. Chou Associates Fund suffered losses of 10% in 2007 and 29% in 2008. Some investors took their money and ran.
The fund's performance rebounded with strong back-to-back gains. Over the past 15 years, it has risen an average of 8.3% a year, more than double the 3.4% average gain by the Standard & Poor's 500-stock index.
Mr. Chou has never formally marketed his funds to investors. Letters he writes to them have a folksy, humble tone that echoes Mr. Buffett, the billionaire chairman and chief executive of Berkshire Hathaway Inc. BRKB -0.14%
In an August note, Mr. Chou called a bad bet on a Chinese cellphone maker "an unforced error like they say in tennis." His investment was "an unnecessary penalty that would send us to the penalty box if it were hockey."
"The market can whack you," Mr. Chou says, "and remind you that you don't know everything."
M* Snapshot OF CHOIX: http://quotes.morningstar.com/fund/f?t=CHOIX&region=usa&culture=en-US
Lipper Snapshot Of CHOIX; http://www.marketwatch.com/investing/fund/choix
U>S. News & World Report Of CHOIX: http://money.usnews.com/funds/mutual-funds/world-bond/chou-income-fund/choix
Fund Website: http://www.chouamerica.com/

A couple of years ago, I sold the funds and bought more individual issues so I can hold to maturity and not lose money.

Did you lose money relative to having bought equivalent Treasuries at higher yields instead? The inflation guarantee is not free lunch.

What are the advantages of buying a fund other than losing some return to annual expenses? It is not like we need to diversify risk since they are all guaranteed by the government.

Funds (or if you were a trader in bonds) allow you to capture capital appreciation in the inflation speculation as well as in yield movements as in any bond fund where in good times, the yields are dwarfed by the capital appreciation. The risk is capital loss for the same conditions going against you. Just like any investment asset class. You don't buy bond funds for the same reasons you buy individual bond funds. For all practical purposes, they are separate asset classes.

One reason to NOT buy a fund is to not get stuck with new purchases of individual TIPS with negative real rates. I only buy when the real rate is positive, an option you don't have with a mutual fund that might have to pay up to buy lower return TIPS for new money coming in which lowers the quality/return of the overall portfolio.

Then you shouldn't be buying any bond funds because the very similar argument can be made for interest rate risks as for inflation risks.
Bond funds are instruments that help you make money (or lose money) on trading of bonds while providing liquidity for your investment. Yields are just one component of it.
With bonds, you sacrifice liquidity if you don't need it for guaranteed yield.
Again, two different investment classes.

@rjb112, when you buy a TIPS bond, you are insured against "inflation" risk in theory. The premium you pay for this is the spread between the equivalent Treasury which on the average is about 2% and the opportunity costs when yields rise during that tied up period relative to other investments. You have to judge your insurance against the cost of that premium. It doesn't matter what the current rates are for that determination between TIPS and Treasuries, only the spread.
In practice, for these times with an active Fed, I find that premium too high because I think the possibility of a rapid rise in inflation is too low for the premium asked and why I call this a "fear trade" like Gold. Gold bugs make the same argument and pay an even higher premium.
Even if that rapid rise were to happen, it would likely be preceded by a massive economic expansion (except in the specific case of stagflation) where the returns on equities would be much higher during that period. This provides a cushion against inflation if one was invested properly as opposed to money being invested in future hedge against inflation during that expansion.
In the case of a slow rise in inflation, I do not feel TIPS bonds provide sufficient insurance against the kind of purchasing power erosion that is not captured in official inflation numbers. It is not the rise in cereal prices or gas or the things I have control over in consumption that I worry about. It is the rise in health care costs, or for people who need them, rents or education or day care expenses for children that is the real killer of wealth/savings. TIPS bonds don't even come close to covering it. Besides, you would have to invest a significant of money in TIPS bonds for the inflation benefits to make a practical difference in one's expenses.
Obviously, the above opinions are subjective and not well quantified to be certain. But insurance is always a tough area to quantify when you need to take into account the probability of future events.
I think TIPS bond purchases are best for high net worth individuals who can deploy a large amount of cash into them without the opportunity costs or premiums on it creating shortfall risks for them.
TIPS Bond funds, where you can capture capital gains from the inflation speculation trade is a different story.

@Ted is absolutely right on this.
TIPS serve the same category as Gold (even with the nominal dividends in the former).
Some, like me, use TIPS funds either as momentum trades for total return or as diversifiers for total return from capital gains rather than dividends. Some use it for fear of what may happen in future. The worst imagined case is unlikely to happen to justify the speculation in these categories. But like Gold, one can benefit from the speculation.
Separate out buying TIPS as individual bonds to hold for dividends and buying TIPS mutual funds. They are completely different asset classes to own for all practical purposes. The former is like owning very expensive insurance against catastrophic inflation that you might never need. The latter has very little to do with inflation and yield and everything to do with total return from capital appreciation from the "fear trade" just like Gold.
But like Gold, the TIPS funds can have significant drawdowns when the sentiments change which makes their inflation protection argument meaningless.
Like Gold, one can crow about TIPS while the inflation expectation (different from inflation) speculation is creating capital appreciation and be silent when it is suffering.

@vert, there are two separate points being mixed up here.
One being inside the box for Sharpe's mathematical guarantee. Obviously, bigger the box, the more difficult it is to find stocks outside it. Sharp's assertion is about ANY box. VTSMX is just one example of it. But his results have been used to claim the result for ANY index vs active fund in that category, for example, that large cap active funds cannot beat SP 500 index for mathematical reasons as outlined by Sharpe. This is incorrect. So, the violations of those inside-the-box assumptions should not be ignored.
The second point is that Sharpe's mathematical results are valid regardless of what the active managers do within that box. But this result is true only when the index to measure against is constructed in a way that is impossible to have a fund for in practice because of the required allocation. VTSMX (or any index fund in any box) is not it. If you use those then you get the paradox I have described above.
To understamd why, one has to understand Sharpe's argument for the result not just the abstract and summary talking points. Let me illustrate by a simple example.
Consider a box that contains only two stocks A and B equally priced to keep it simple. There are two active investors IA and IB each of whom own one share of A and B respectively. Let us say an index owns a share each of A and B. Sharpe's argument works like this:
Say A goes up 10% and B goes up 20% with IA and IB realizing the corresponding results. The index gains 15% from owning both. Sharpes' thesis is that IB overperformed by 5% but IA underperformed by 5%, so the average investor dollar didn't beat the index and will be worse after fees. This is the correct part.
But there is an implied assumption about that index that is critical. What if there was a third investor who also owned B? The average over all investors is then 16.67%, a 1.67% win over the index for the average. Or what if all the three owned only B? All of them beat that index by 5%! That is the paradox.
If you think about what happened here, Sharpe's formulation is correct ONLY when the index you consider contains the underlying stocks in the SAME proportion as the aggregate stock holdings from all active investors. There will be no paradox here.
The index cannot be market cap weighted, or equal weighted or ANY weighting unrelated to the actual share proportions held by investors. Not only is any index fund like VTSMX far away from this, it is not even possible in practice to create such a fund because it will have to continuously keep altering its allocation to match what investors are doing!
Again, this is all about the validity of the mathematical guarantee. Good theory but not very applicable in practice and incorrectly propagated by people who only understand the headlines.

Sure, its true but I think this is a simple throwaway statement. As an analogy, what if you and 5 friends make a pact using a coin that says when it is your birthday and if you hold the coin, someone else in the group will step forward and buy it from you for whatever price you name. Or maybe its a closed bid auction and everyone has to bid for the coin on your birthday. (OK, this may need some fleshing out) In any case, the coin changes hands, the group of 6 doesn't gain or lose any money overall but obviously someone could and would be a winner.
What I find interesting is the same folk that tell you that the world earns the market return are quick to tell you the average investor falls far short of that return (by as much as 50% of that return). Well then some other group must be earning what the average guy leaves behind, no?
As to Sharpe's paper, where is he drawing the box? His market is every intangible and tangible item on the globe. What if I sold stocks in 2008, and bought a restored 1970 Chevelle? Are my current gains weighed against those that bought my stocks and sold me that car? What if the guy who sold me the car bought machine tools and started business - how can Sharpe say its all in one box?

Vanguard also allows for an exchange into the institutional versions of RPHYX and RSIVX without incurring capital gains. Schwab does not permit investors to make this exchange. Also, at Schwab, while you can sell RPHYX you obviously cannot use the the proceeds to buy $100K of RPHIX since it is soft closed.
Off topic, but if GPROX ever hard closes, my understanding is that Vanguard will allow investors to continue to invest in the GPROX through a previously set up AIP; Schwab will not.

The theory also sets up paradoxes that cannot be explained if you assume the total market index composition at any time captures the total market gains of all sub sectors.
For example, imagine a hypothetical scenario in which all active managers conspire to put all of their money ONLY in the stocks owned by the small cap value index fund VISVX and hold it. This satisfies the theory assumptions. The average performance of the active managers will be the same as that of VISVX.
This is a small subset of Total Stock Market index and so only a small proportion of those gains will be captured by the total market index. If the theory is correct, then it requires the rest of the stocks not in VISVX to NECESSARILY outperform or match VISVX stocks which is the only way for the returns on "active dollars" to be less than or equal to the total market. But there is no mathematical guarantee for that. Theory cannot explain this paradox.
In reality, the opposite will likely happen as all the flow of money into VISVX stocks will keep it the best performance sector until the resulting increasing market caps will force the indices to restructure their holdings and so follow the conspiring active managers from sector to sector but never matching their performance!
Indexology assumes that otherwise rational active traders knowingly continue to engage in a losing game in sufficient volume to create the price discovery that indexing requires to exist. If they all move to indexing as efficient markets and rational behavior would dictate, price discovery collapses and takes down the validity of indexing with it. :-)

There are about 5000 stocks currently listed in US stock markets (though this keeps varying). Fund managers don't need to own only the stocks outside the index.
For the "mathematical guarantee" of the zero sum game assumption to hold, you cannot have the fund managers owning ANY stock outside the index because the argument that the gains in any stocks held by the active manager is captured by the index itself and at the expense of another active manager doesn't hold.
If a manager strikes rich with an IPO allocation or a distressed company coming out of bankruptcy, then it is not necessarily at the expense of any other manager because new value is being created. In fact, in the latter case, in theory, the gains could have come out of the losses in the index funds before that company was thrown out after locking in the losses!
If a company held by an active manager is included in the index resulting in a pop in its price from the announcement, then the active manager realizes those gains not necessarily at the expense of any other manager nor is that gain captured by the index.
Finally, by definition, the active managers must be fully invested with no cash for the zero sum assumption to hold. Otherwise, if the active managers, in theory, market time perfectly, and go to cash before a crash with the loss in value from such sales captured by everybody including the index funds, then the active managers can ALL beat the indices by staying out of the marker for the crash. The mathematical guarantee of zero sum game doesn't hold in this case.
The point is that the theoretical framework in which this mathematical guarantee is provided doesn't model the real world but some theoretical unrealistic world with a lot of constraints on the managers and the definition of the market.
Note that all of these arguments have nothing to do with whether managers can achieve this in reality or whether they under or over perform as measured empirically in some period. They claim to "prove" the average active dollar underperformance mathematically. Only IF the assumptions above model reality. Without it, they make no assertions one way or the other.