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THE DEATH OF MUTUAL FUNDS (4 OF 4): YOUR MONEY IS INVISIBLE, THEIR GREED IS NOT.
By www.TraderNewsAndReviews.com
http://www.tradernewsandreviews.com/the-death-of-mutual-funds-4-of-4-your-money-is-invisible-their-greed-is-not
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What is investing in funds really costing you?
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You can expect to pay approximately 3% to 4% of your fund assets yearly in total cost (upfront or backend cost) for a load fund.
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For no load fund, you’ll still be paying around 3% to 3 .5% for your portfolio mutual funds.
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If you do some serious checking into these costs over the life of your portfolio you’ll see some serious money going into the coffers of the mutual fund companies over and over again.
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“Loads are just one part of the investing picture, and a savvy investor will consider all costs of an offering
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including loads (which come in a variety of types, some of which might actually jibe with your strategies and goals), management fees and trading costs, as well as all potential returns, before making a decision.“
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Unlike paying your gas bill or your light bill regularly, you’ll hardly ever receive a bill from your mutual fund company.
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Your costs are simply deducted from your portfolio returns right off the top when the broker executes a trade.
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You may scream if your daughter makes an unauthorized credit card purchase, but where are you when you pay a 5% load on a $25,000 mutual fund investment?
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Industry Greed Pulls Profits
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With the boom of mutual fund returns in the 1990s, wouldn’t you think the fund companies with these huge infusions of cash coming in and internal expenses stabilizing reduce fees for their shareholders?
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Don’t count on it. In fact, because the fixed cost of fund companies (staffing, accounting, research, and so forth) became smaller, fees actually could’ve been reduced.
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Remember, fund companies increased revenues many times to over 7 trillion in the year 2000 from 371 billion in 1984.
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Instead, the internal fees these companies charge investors have risen by approximately 30%. Go figure!
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John Bogle says “the drive to make money for others – the fund’s shareholders may not be as powerful as the drive to make money for oneself through ownership participation in the management company.
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There are two sides pulling against each other in mutual fund companies: the shareholders (the investors in the mutual funds) and the stockholders (the investors in the mutual fund company).”
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“Favor funds run by managers who have their own wealth invested in their funds, such as Dodge & Cox Stock DODGX and American Funds Growth Fund of America AGTHX.
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These managers are likely to be tax conscious because at least some of the money they have invested in their funds is in taxable accounts.“
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The mutual fund industry profits by keeping the lights off.
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As long as the fund companies keep you ignorant, the negative elements of mutual funds won’t ever be brought to light.
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Most investors traditionally have to make do with minimum information.
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That’s the bare minimum ruled by the SEC.
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Twice a year, you get to see what’s going on in your account.
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It’s Your Money - But You Can’t See It
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Investors said they want their financial information 24/7.
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Even though the internet has sped up the tracking of investments considerably, major fund companies have been painfully slow to keep investors current.
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This means that when you check your holdings on the web, your figures are out of date, and possibly flat out wrong or altogether missing because fund managers are changing your portfolio so rapidly.
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Arthur Levitt, former chairman of the SEC says “investors simply do not get what they pay for when they buy into a mutual fund; most investors don’t even know what they’re paying for.
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The industry has often misled investors into buying funds on the basis of past performance.
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Fees, along with the effect of annual expenses, sales loads, and trading costs, are hidden.
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Fund directors as a whole exercise scant oversight over management.
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The cumulative effect of this has manifested itself in the form of late trading, market timing, and other instances of preferential treatment that cut at the very heart of investor trust.
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It would be hard not to conclude that the way funds are sold and managed reveals a culture that thrives on hype, promotes short-term trading, and withholds import information.
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The Dynamic Shift in the Market
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We must never underestimate the rich man’s appeal of mutual funds.
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Many older and wealthier Americans in this country own mutual funds and are comfortable with the investment process that has been around for some 60 years.
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“The historical evidence is clear that both the future return on stocks and their probable riskiness depends on the level of market valuation and the “uniformity” of market action (favorable trends across a wide range of indices).
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However, it is a fact that over time, very wealthy individuals have an average allocation to stocks which is above the norm.
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Most have achieved their fortunes by compounding a moderate but consistent rate of return over a long period of time.“
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That feeling is disappearing. Today’s investors are more comfortable with change.
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Today, those with emerging affluence are asking themselves if they should stay with the ultimate retail investment-one that is associated with mass market investing and that is now viewed by many as a commodity.
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Mutual fund managers don’t differentiate between one investor and another.
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Their job is to boost the inflow from the account and to get the numbers regardless of who’s investing in the fund.
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The bottom line is mutual funds do not treat their investors like the good old days.
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Unless you are totally shut out from the world, you have, like most of us, regular contact with people. Family and friends are a given.
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You like human contact and feel goodwill towards people most of the time.
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The downside of human contact is when you find yourself in the overstuffed elevator and get stuck between floors.
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It’s uncomfortable, stressful, intimidating, and even scary.
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The same can be said of mutual funds. You’ll have crowded elevator contact but you still have contact with people.
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Dealing with other investors in your mutual fund can invoke feelings similar to the overcrowded elevator-stress and intimidation.
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The inflows and outflows caused by human nature may be some of the more subtle difficulties of mutual funds.
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Fellow investors panic when the markets fall and become greedy as the markets rise.
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Fight or Flight Impacts Fund Performance
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Instead of following the traditional words of investor wisdom-buy low and sell high -just the opposite occurs.
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Every investor feels the impact of a bloated fund with too much cash.
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It becomes too unwieldy for good management control.
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This causes funds to grow too quickly, turning good performing funds into bad performers from one year to the next.
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“One advantage of mutual funds that’s really a disadvantage is it’s easy to get out of them”, remarked Peter F.Tedstrom, of Brown and Tedstrom, Inc.
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“this makes it simple for an investor to call in an order as soon as the market dips,” said Tedstrom, consequently, in the end, the investor suffers poor performance returns by frequently trading in and out of his or her portfolio.”
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“When equity markets fluctuate, most common investors pull out.
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Goal based investment framework, understanding of how SIPs work and regular monitoring of the portfolio will give the investor the conviction to stay on even during difficult days.
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It’s very common for investors to periodically sell off accumulated holdings in Equity MFs and invest in Real Estate.
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The investors should review his asset allocation before taking such steps.
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On the other hand, it has been seen that the investors adopt ‘Buy and Hold’ strategy with no changes in the MF portfolio for years.”
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Is This the Death of Mutual Funds?
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In conclusion, I want to ask the question:
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Is this the end of mutual fund domination? I don’t think so.
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You must understand that mutual funds are an American icon.
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Since the first mutual fund was formed, it has been the building block of our country’s investment strategy and home to some 93 million Americans today.
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Habits die hard, even in the face of the facts given above, my guess is that only half of the readers take any significant action.
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An investment pattern with this concept originally developed slowly.
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Americans put about 20% of their discretionary wealth into mutual funds during the 1970s and 80s.
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By the time the 1990s rolled around, investors were investing at a rate of 25%. In 1996, that rate rose to 60%.
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At the end of the century, the rate of investment in the mutual funds by Americans climbed to a staggering 82%!
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Let’s face it; millions of Americans will continue to put their hard-earned wealth into the mutual fund vehicle. They don’t get the message.
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Did your parents ever ask you “if everyone else jumps off a bridge are you going to do it also?”
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Just because most people are too lazy to do their homework does not mean you have to be.
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We now have better options out there for you to accumulate future wealth.
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You can retire comfortably, you can secure your family’s future, and you can break the chains of bondage that hold a lot of investors down.
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The more money you accumulate by the time you retire, the more comfort and freedom you will have.
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You could stay on vacation a week longer, you can take trips to see the grandkids two or three times a year instead of just once.
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“If you prefer to own “passive” investments, notable art pieces or wine collections might be attractive.
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Unfortunately, these often require outlandish capital outlays and typically aren’t liquid.
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In order to sell art or wine, you’ll need to contact a reputable dealer or auction house.
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This can take lots of time and expose you to exorbitant fees.
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As such, you might prefer to invest in exotic yet liquid vehicles like real estate investment trusts, energy trusts or currencies.“
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Most likely the giant of the mutual fund industry will continue to grow and churn away people’s accounts.
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But I hope this special report has awakened a hunger to gain knowledge, do research, and have the courage not to follow the herd mentality of the average investor.
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If enough people read this report, understood it and acted on it we would see the death of Mutual Funds.
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You are not the average investor. You are above average!
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The fact that you have read this whole report proves that to me.
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You have the power and control to create your own destiny for your future and the future of your children’s children.
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There are better alternatives for your investments than mutual funds.
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I hope by writing this report I have encouraged you to take control of your own investments or at the very least to never buy another Mutual Fund.
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