|
|
|
|
|
|
The Nasty Truth About Mutual Funds Investing
Here are some facts that might make many fund investors question why they have chosen to invest in funds at all.
According to John Bogle, former CEO of Vanguard Funds, one of the most trusted authorities on investing in mutual funds and a strong advocate for ordinary investors, such investors typically get poor returns on their investments. How poor?
Between 1984 and 2002, the average stock fund investor made just 2.7% per year on their fund investments! Hard to believe isn't it? Yet this is for a period during which the S&P Stock 500 Index returned 12.2%, a -9.5% shortfall!
Expressed somewhat differently, had the equity investor invested $1000 buy and hold in the average equity fund beginning in 1984, their investment would have risen in value by $4420 by the close of 2002, for a 9.3% return. But had he invested the $1000 in the S&P 500 Stock Index instead beginning in 1984, his profit would have been $7910.
But, folks, here's the biggest part of the problem: Since most fund investors tend to buy and sell as a function of mass psychology, which usually turns out to be wrong, the average equity fund investor does far worse over the years than the long-term results had he merely bought and held his funds. So, if we track the performance of the typical investor's $1000 made at the start of 1984, his profit would be a mere $660, or a shocking one-twelfth of that of the $7910 shown above for the S&P Index.
How does Bogle account for this tremendous shortfall by the average investor? He attributes the first 3% of the annualized loss to the management fees, costs of the higher than 100% average turnover of stock portfolios, and other expenses incurred by the average fund. As a result of such hefty costs, the typical fund earns, as shown above, nearly 3% less than the Index.
And what about the bigger 6.6% annual difference between the 9.3% return of the average fund and the 2.7% earned by the average investor in those funds? Bogle attributes it to too many fund choices, the great majority of which are too undiversified to meet the typical investor's needs. Such, along with the emotions of "greed
and fear", create an atmosphere whereby people are often tempted to make the wrong choices at the wrong times; that is, they are too avid to buy when they should be being more cautious, and too prone to sell out when things have been going poorly for quite a long time rather than selling just a small portion of their holdings, as I have advocated in my writings. (Incidentally, several of the very kind of investment problems reported by Bogle have been dealt with in previous articles on my own not-for-profit website.)
So what can you do to get better results than those achieved by the average investor?
Bogle is known for his support of index funds to reduce fund costs. We agree that this is certainly part of the solution. We also feel that you should choose fund companies and products whose management fees are among the lowest.
But, unfortunately, indexing to the S&P 500 would not have helped you a great deal during the last 5 years; the total return for this itself somewhat undiversified index of U.S. large cap stocks has been a miserable -1.6%. And, unfortunately, human nature, and changing financial and personal circumstances make it all the more difficult to hold any investment year after year for a decade or two, as would have been required to emulate the results above.
Even if you are confident in your own research or rely on data provided by a trusted resource, I still recommend that you consider how the above data might be affecting how well you are really doing in your investments, year after year.
For more thoughts on how to avoid losing the above 6.6% annual return, the largest part of why the average mutual fund investor underperforms, you should invest a little time checking out some of the relevant articles at my site at http://funds-newsletter.com
About the Author
Tom publishes "Mutual Fund Trends & Research Newsletter", a popular, temporarily free source of mutual fund advice at his website at http://funds-newsletter.com. The Newsletter has been in existence since May, 1999. Tom's investment articles have been chosen as featured articles on numerous other web sites.
|
|
|
|
|
| Morningstar: Stocks, Mutual Funds, and Investing |
| Offers investment research. Covers stocks, funds and college savings plans. |
| www.morningstar.com |
|
| StockSmart - Putting the Individual Investor Ahead |
| StockSmart putting individual investors ahead with research that allows individuals to easily compare industry competitors. Take stock quotes to the next ... |
| www.stocksmart.com |
|
| Finance - Stocks-Mutual-Funds Ezine Articles |
| EzineArticles.com allows ezine or email list publishers to upload or download free expert content that can be used within email newsletters or websites. |
| ezinearticles.com |
|
| Finance: Stocks Mutual Funds Articles from EzineArticles.com |
| http://ezinearticles.com/?cat=Finance:Stocks-Mutual-Funds Free Content For Your Ezine or Website http://creativecommons.org/licenses/by-nc-nd/2.0/ Having a ... |
| ezinearticles.com |
|
| NewsIsFree: USATODAY.com: Stocks/Mutual Funds: Information About ... |
| USATODAY.com: Stocks/Mutual Funds · Original XML Source Money Classifieds - Stocks/Mutual Funds Copyright 2011, USATODAY.com, USA TODAY ... |
| www.newsisfree.com |
|
| Online Giving - Campus Crusade for Christ International |
| Credit Card by Mail or Phone. Other Ways to Give. Non-Cash Gifts: Stocks, Mutual Funds, & Property Gifts · Planned Giving: Wills, Trusts & Annuities ... |
| https: |
|
| New way to watch stocks, mutual funds & 401k at office. Free ... |
| Excel workbook for stocks and mutual funds. Download quotes directly from Internet. |
| www.esquotes.com |
|
| News From The Associated Press |
| Copyright 2005 Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed. Comments and questions. |
| customwire.ap.org |
|
| Google Finance Launches : Track Stocks, Mutual Funds & Companies |
| Google Finance offers an easier way to search for stocks, mutual funds, public and private companies. Further, Google Finance also offers a broad range of ... |
| www.quickonlinetips.com |
|
| Yahoo! Answers - Individual stocks, mutual funds, and ETFs? |
| 2 answers - what are the difference between individual stocks , mutual funds and ETFs? which one is better for investment ? |
| answers.yahoo.com |
|
| Petition Spot :: View Forum - Investing: Stocks, Mutual Funds |
| Investing: Stocks, Mutual Funds Moderators: None Users browsing this forum: None, Goto page. Post new topic · Petition Spot Forum Index->Investing: Stocks, ... |
| www.petitionspot.com |
|
| Donate Stocks/Mutual Funds/Bonds: Beth Israel Deaconess Medical ... |
| Subordinate Link Selected Link (Level 3): Donate Stocks/Mutual Funds/Bonds · Subordinate Link Donate by Telephone · Subordinate Link Employee Giving ... |
| www.bidmc.harvard.edu |
|
| Gifts of Stocks/Mutual Funds/Bonds: Beth Israel Deaconess Medical ... |
| Subordinate Link Selected Link (Level 3): Gifts of Stocks/Mutual Funds/Bonds · Subordinate Link Donate By Telephone or Mail ... |
| www.bidmc.harvard.edu |
|
| U.S. stocks - mutual funds that invest in American companies ... |
| US stocks - mutual funds that invest in American companies from Kiplingers Personal Finance Magazine in Business & Finance provided free by LookSmart Find ... |
| www.findarticles.com |
|
| Investment capsule: - stocks, mutual funds and fixed income Money ... |
| Investment capsule: - stocks, mutual funds and fixed income from Money Digest in Business & Finance provided free by LookSmart Find Articles. |
| www.findarticles.com |
|
| stocks mutual funds invest free stock quotes stock picks investing ... |
| Free short term stock picks. Buy, sell and hold recommendations. Stock market, financial investments, quotes, mutual funds. |
| home.flash.net |
|
| Stocks/Mutual Funds - Gospel for Asia |
| 14500 native missionaries already serve and plant over 10 churches daily. Help sponsor a native missionary for $30 per month. 100% goes directly to the ... |
| www.gfa.org |
|
| Keeping Good Records: Stocks, Mutual Funds, and Bond Investing |
| Keeping Good Records: Stocks, Mutual Funds, and Bond Investing. |
| taxes.about.com |
|
| Online Trading at Fidelity- Stocks, mutual funds, ETFs, options ... |
| With Fidelity online trading, you get low commissions, trading tools, and a range of investment options. |
| https: |
|
| Articles for Reprint - Stocks-Mutual-Funds |
| Stocks-Mutual-Funds. Personal-Finance · Currency-Trading ... By Sachin A | On June 1, 2006 | In Stocks-Mutual-Funds | Rated. Full Article · Print Article ... |
| www.articles-hub.com |
|
|