10 Questions: Is Your Fund Family the Enemy?

The practical problem is that it's still the most overvalued of all the broad indexes. You're still getting a dividend yield of 1.6%, if you're lucky. That's not great.

The reason is, it's market-cap weighted. It becomes over-represented in terms of overvalued stocks.

Having said that, I'll refer to Jack Bogle, Vanguard's founder, who notes that you could point out all the flaws of a bumblebee, and say it shouldn't fly. But fly it does. (Laughs.) The S&P 500 over the past 15 years has still beaten the majority of actively managed funds.

7. You discuss the difference between investment firms and marketing firms in the fund world. Are there any active-management firms you do like?

First of all, there are the quasi-actively managed funds -- Vanguard and DFA. Vanguard's actively managed funds are good funds because they adhere to the low-expenses, low-turnover discipline.

There are other actively managed groups I admire: SsgA has done a good job. Tweedy, Browne does an excellent job, but their expenses are a bit high. T. Rowe Price is a decent fund family. It comes down to corporate culture and ethics; all these firms have those.

And God save me, even the American Funds Group. They're a load-fund group, but they are low-key; they stick to their discipline; they are appropriately fiduciary.

Oh, I also think TIAA-CREF is wonderful and I think [Chief Investment Officer] Martin Leibowitz should be canonized.

8. Your long-term expectations for the market are below historical rates of return -- and certainly below what a lot of pension funds are expecting. Would you explain your outlook going forward? What do you make of the latest market rally?

I don't make anything of the latest market rally. I don't know, and no one knows.

As I see it, The long term is much more important than the short term. Six months to three years is irrelevant. How well you and I and your readers are going to do depends on what's going to happen over the next 30 years.

You can make an educated guess about that -- measure growth in dividends and earnings plus the dividend yield itself. Optimistically, that projects 3.5% real returns, after adjusting for inflation.