The Death of Mutual Funds (2 of 4): Mutual Funds: Lies, Consequences & Critics

By www.TraderNewsAndReviews.com The Death of Mutual Funds (2 of 4): Mutual Funds: Lies, Consequences & Critics

http://www.tradernewsandreviews.com/the-death-of-mutual-funds-2-of-4-mutual-funds-lies-consequences-critics/ Did you know that around 15 years ago there was not one TV channel that covered detailed market news?

http://www.tradernewsandreviews.com/the-death-of-mutual-funds-2-of-4-mutual-funds-lies-consequences-critics/ Today there are according to Robert B. Jorgensen:

http://www.tradernewsandreviews.com/the-death-of-mutual-funds-2-of-4-mutual-funds-lies-consequences-critics/ Hundreds of radio stations that report financial newsSpecialized financial newspapers and magazinesThree major cable channels that are devoted to financial newsMost major and minor newspapers have business pages

http://www.tradernewsandreviews.com/the-death-of-mutual-funds-2-of-4-mutual-funds-lies-consequences-critics/ Thousands of newsletters that cover financial topicsHundreds of thousands of websites that pertains to financial investmentsFinancial salespeople to make callsAdvertisers, slick brochures, and mailing pieces abound with financial offers

http://www.tradernewsandreviews.com/the-death-of-mutual-funds-2-of-4-mutual-funds-lies-consequences-critics/ Literally hundreds of websites are positioned to reveal the latest hot investment opportunity.

http://www.tradernewsandreviews.com/the-death-of-mutual-funds-2-of-4-mutual-funds-lies-consequences-critics/ All these triggering devices want you to believe theyre rubbing the lamp with one rub that will propel you to untold riches.

http://www.tradernewsandreviews.com/the-death-of-mutual-funds-2-of-4-mutual-funds-lies-consequences-critics/ Former SEC Chairman: You Are Being Lied To!

http://www.tradernewsandreviews.com/the-death-of-mutual-funds-2-of-4-mutual-funds-lies-consequences-critics/ Investors today are being fed lies and distortions, and are being exploited and neglected, says Arthur Leavitt, former chairman of the SEC.

http://www.tradernewsandreviews.com/the-death-of-mutual-funds-2-of-4-mutual-funds-lies-consequences-critics/ In the wake of the last decades rush to invest by millions of households, and Wall Streets obsession with short-term performance, a culture of gamesmanship has grown amongst corporate management, financial analysts, brokers, and mutual fund managers, making it hard to tell financial fantasy from reality, and salesmanship from honest advice.

http://www.tradernewsandreviews.com/the-death-of-mutual-funds-2-of-4-mutual-funds-lies-consequences-critics/ Its time for you to know the truth about mutual funds or you will suffer the consequences.

http://www.tradernewsandreviews.com/the-death-of-mutual-funds-2-of-4-mutual-funds-lies-consequences-critics/ The quick change consequence -you invest in the fund to fulfill a certain investment strategy.

http://www.tradernewsandreviews.com/the-death-of-mutual-funds-2-of-4-mutual-funds-lies-consequences-critics/ Be careful, the manager can change the strategy.

http://www.tradernewsandreviews.com/the-death-of-mutual-funds-2-of-4-mutual-funds-lies-consequences-critics/ The power vacuum consequences the fund managers make the entire buy and sell decisions, not you.

http://www.tradernewsandreviews.com/the-death-of-mutual-funds-2-of-4-mutual-funds-lies-consequences-critics/ The no diversification consequence unless youre diversified across fund sectors, you may wind up owning the same stock in different funds.

http://www.tradernewsandreviews.com/the-death-of-mutual-funds-2-of-4-mutual-funds-lies-consequences-critics/ The names the game consequence -a stock funds name doesnt always reflect its investing intentions.

http://www.tradernewsandreviews.com/the-death-of-mutual-funds-2-of-4-mutual-funds-lies-consequences-critics/ The moving manager consequence managers come and go. If you lose your manager, your account will probably suffer.

http://www.tradernewsandreviews.com/the-death-of-mutual-funds-2-of-4-mutual-funds-lies-consequences-critics/ The huge fund consequence the more assets a fund takes in, the higher the chances of lower performance.

http://www.tradernewsandreviews.com/the-death-of-mutual-funds-2-of-4-mutual-funds-lies-consequences-critics/ The fee consequence - youll pay myriad fees and commissions.

http://www.tradernewsandreviews.com/the-death-of-mutual-funds-2-of-4-mutual-funds-lies-consequences-critics/ The bottom line is mutual fund companies fall short in regard to performance and returns with investors stock funds, yet they are a master at charging exorbitant fees and add-on charges.

http://www.tradernewsandreviews.com/the-death-of-mutual-funds-2-of-4-mutual-funds-lies-consequences-critics/ In short, mutual funds are a marketing success, not an investing success.

http://www.tradernewsandreviews.com/the-death-of-mutual-funds-2-of-4-mutual-funds-lies-consequences-critics/ A frequently asked question is whether the SEC imposes any specific limits on the size of the fees that a fund may charge.

http://www.tradernewsandreviews.com/the-death-of-mutual-funds-2-of-4-mutual-funds-lies-consequences-critics/ The short answer is the SEC generally does not, although the SEC limits redemption fees to 2% in most situations.

http://www.tradernewsandreviews.com/the-death-of-mutual-funds-2-of-4-mutual-funds-lies-consequences-critics/ What Does This Mean to Investors?

http://www.tradernewsandreviews.com/the-death-of-mutual-funds-2-of-4-mutual-funds-lies-consequences-critics/ What does this mean to you as an investor of your hard-earned money into mutual funds?

http://www.tradernewsandreviews.com/the-death-of-mutual-funds-2-of-4-mutual-funds-lies-consequences-critics/ Youve entrusted your money and your wealth to mutual funds but guess what? Youre getting the short end of the stick.

http://www.tradernewsandreviews.com/the-death-of-mutual-funds-2-of-4-mutual-funds-lies-consequences-critics/ This is surprising because weve always been told that the stock market is the single best place to build wealth for your families and your retirement.

http://www.tradernewsandreviews.com/the-death-of-mutual-funds-2-of-4-mutual-funds-lies-consequences-critics/ This is true if youre getting the most value for your dollar by putting those dollars in the right investment vehicles.

http://www.tradernewsandreviews.com/the-death-of-mutual-funds-2-of-4-mutual-funds-lies-consequences-critics/ If youre not, your portfolio is on a treadmill going nowhere along with the assets of millions of other dejected mutual funds and mutual fund investors.

http://www.tradernewsandreviews.com/the-death-of-mutual-funds-2-of-4-mutual-funds-lies-consequences-critics/ My purpose here is to get you off of the mutual fund treadmill, and I hope by this point I at least got you thinking.

http://www.tradernewsandreviews.com/the-death-of-mutual-funds-2-of-4-mutual-funds-lies-consequences-critics/ So the question is what went wrong with something so right?

http://www.tradernewsandreviews.com/the-death-of-mutual-funds-2-of-4-mutual-funds-lies-consequences-critics/ In 2005, mutual funds assets totaled over $8.1 trillion.

http://www.tradernewsandreviews.com/the-death-of-mutual-funds-2-of-4-mutual-funds-lies-consequences-critics/ This increase calls for companies priorities to shift.

http://www.tradernewsandreviews.com/the-death-of-mutual-funds-2-of-4-mutual-funds-lies-consequences-critics/ Its evident that the mutual fund industry does not hold the individual investor in the highest regard.

http://www.tradernewsandreviews.com/the-death-of-mutual-funds-2-of-4-mutual-funds-lies-consequences-critics/ John Bogle, an outspoken critic of mutual funds and the founder of Vanguard financial, says his biggest complaint of the mutual fund industry is that its now run like a business.

http://www.tradernewsandreviews.com/the-death-of-mutual-funds-2-of-4-mutual-funds-lies-consequences-critics/ Bogle traces the industrys demise to a 1956 federal court ruling allowing mutual fund firms to become public enterprises.

http://www.tradernewsandreviews.com/the-death-of-mutual-funds-2-of-4-mutual-funds-lies-consequences-critics/ This changed the playing field, according to Bogle.

http://www.tradernewsandreviews.com/the-death-of-mutual-funds-2-of-4-mutual-funds-lies-consequences-critics/ That opened the door to look at this business as an entrepreneurial business in which the focus was on making money for the stockholders, he said.

http://www.tradernewsandreviews.com/the-death-of-mutual-funds-2-of-4-mutual-funds-lies-consequences-critics/ Once you change the investment profession into a marketing service business, you put management in the backseat and marketing in front.

http://www.tradernewsandreviews.com/the-death-of-mutual-funds-2-of-4-mutual-funds-lies-consequences-critics/ All things considered, it is undesirable for professional enterprises to have public stockholders.

http://www.tradernewsandreviews.com/the-death-of-mutual-funds-2-of-4-mutual-funds-lies-consequences-critics/ This constraint is as applicable to money managers as it is to doctors, or lawyers, or accountants, or architects.

http://www.tradernewsandreviews.com/the-death-of-mutual-funds-2-of-4-mutual-funds-lies-consequences-critics/ In their cases, as in oursit is hard to see what unique contribution public investors bring to the enterprise.

http://www.tradernewsandreviews.com/the-death-of-mutual-funds-2-of-4-mutual-funds-lies-consequences-critics/ They do not (contribute) capital; they do not add expertise; they do not enhance the well-being of our clients . . .

http://www.tradernewsandreviews.com/the-death-of-mutual-funds-2-of-4-mutual-funds-lies-consequences-critics/ Indeed, it is possible to envision circumstances in which the pressure for earnings and earnings growth engendered by public ownership is antithetical to the responsible operation of a professional organization and . . . to the exercise of our fiduciary duty.

http://www.tradernewsandreviews.com/the-death-of-mutual-funds-2-of-4-mutual-funds-lies-consequences-critics/ Will Mutual Funds Go Extinct?

http://www.tradernewsandreviews.com/the-death-of-mutual-funds-2-of-4-mutual-funds-lies-consequences-critics/ These changes in priorities will hasten the downfall of mutual funds in much the same way that the catastrophic changes in their environment wiped out the dinosaurs.

http://www.tradernewsandreviews.com/the-death-of-mutual-funds-2-of-4-mutual-funds-lies-consequences-critics/ This doesnt mean that mutual funds and the companies that produce and market them are going to become extinct. In fact the opposite is true.

http://www.tradernewsandreviews.com/the-death-of-mutual-funds-2-of-4-mutual-funds-lies-consequences-critics/ At the time of this writing, mutual fund companies are evolving.

http://www.tradernewsandreviews.com/the-death-of-mutual-funds-2-of-4-mutual-funds-lies-consequences-critics/ Theyre developing new alternatives and investment strategies in order to hold on to their client base and secure new clients.

http://www.tradernewsandreviews.com/the-death-of-mutual-funds-2-of-4-mutual-funds-lies-consequences-critics/ Eventually, though, mutual funds will take a backseat to new forms of investing for the emerging affluent investor.

http://www.tradernewsandreviews.com/the-death-of-mutual-funds-2-of-4-mutual-funds-lies-consequences-critics/ Mutual funds as we know them are going by the way of the dinosaur.

http://www.tradernewsandreviews.com/the-death-of-mutual-funds-2-of-4-mutual-funds-lies-consequences-critics/ so at some point its possible ETFs might overtake mutual funds.

http://www.tradernewsandreviews.com/the-death-of-mutual-funds-2-of-4-mutual-funds-lies-consequences-critics/ But it will be a long time if the assets in ETFs grew by 10% per year for 25 years they would only then equal current mutual fund asset levels.

http://www.tradernewsandreviews.com/the-death-of-mutual-funds-2-of-4-mutual-funds-lies-consequences-critics/ Mutual funds are dying in their original state because of the unfairness of fees, unnecessary taxes, lack of investor control, and a host of other reasons.

http://www.tradernewsandreviews.com/the-death-of-mutual-funds-2-of-4-mutual-funds-lies-consequences-critics/ Investors have never grasped these points until now.

http://www.tradernewsandreviews.com/the-death-of-mutual-funds-2-of-4-mutual-funds-lies-consequences-critics/ Today, a lot of investors understand the drawbacks of mutual funds because the events of the last five years have brought the message home.

http://www.tradernewsandreviews.com/the-death-of-mutual-funds-2-of-4-mutual-funds-lies-consequences-critics/ They discovered that theyre paying out millions of dollars in excessive cost in running needless risk, all in the hope of outperforming the market.

http://www.tradernewsandreviews.com/the-death-of-mutual-funds-2-of-4-mutual-funds-lies-consequences-critics/ Where is the Government When We Need Them?

http://www.tradernewsandreviews.com/the-death-of-mutual-funds-2-of-4-mutual-funds-lies-consequences-critics/ We need government to rise to the occasion. As the government examines more critically the operating policies of mutual funds, things will change (in much the same way we transformed transportation from the horse and buggy to the automobile).

http://www.tradernewsandreviews.com/the-death-of-mutual-funds-2-of-4-mutual-funds-lies-consequences-critics/ If you are like me and dont want to wait on the government to fix your problems then the only choice is to take your financial future into your own hands.

http://www.tradernewsandreviews.com/the-death-of-mutual-funds-2-of-4-mutual-funds-lies-consequences-critics/ Increased federal and state scrutiny will trigger more reforms that will probably get the ball rolling in Congress, like the mutual fund integrity and fee transparency act that the mutual fund industry successfully lobbied against.

http://www.tradernewsandreviews.com/the-death-of-mutual-funds-2-of-4-mutual-funds-lies-consequences-critics/ The Federal Funding Accountability and Transparency Act (FFATA) was signed on September 26, 2006.

http://www.tradernewsandreviews.com/the-death-of-mutual-funds-2-of-4-mutual-funds-lies-consequences-critics/ The intent is to empower every American with the ability to hold the government accountable for each spending decision.

http://www.tradernewsandreviews.com/the-death-of-mutual-funds-2-of-4-mutual-funds-lies-consequences-critics/ The end result is to reduce wasteful spending in the government.

http://www.tradernewsandreviews.com/the-death-of-mutual-funds-2-of-4-mutual-funds-lies-consequences-critics/ The FFATA legislation requires information on federal awards (federal financial assistance and expenditures) be made available to the public via a single, searchable website, which is www.USASpending.gov.

http://www.tradernewsandreviews.com/the-death-of-mutual-funds-2-of-4-mutual-funds-lies-consequences-critics/ Meanwhile, underperformance is the norm for mutual funds.

http://www.tradernewsandreviews.com/the-death-of-mutual-funds-2-of-4-mutual-funds-lies-consequences-critics/ In recent years, the mutual fund companies could perhaps be forgiven for the huge marketing expenses and increased salaries of their star managers if the product delivered as advertised.

http://www.tradernewsandreviews.com/the-death-of-mutual-funds-2-of-4-mutual-funds-lies-consequences-critics/ But this is no longer the case. Underperformance is the norm rather than the exception.

http://www.tradernewsandreviews.com/the-death-of-mutual-funds-2-of-4-mutual-funds-lies-consequences-critics/ Its a fact. In spite of our respectable pass during the 1980s and 1990s, the average mutual fund returned 2% less than the returns of the market each year.

http://www.tradernewsandreviews.com/the-death-of-mutual-funds-2-of-4-mutual-funds-lies-consequences-critics/ In the mutual fund industry, we used to be in the business of long-term investing; now were in the business of short-term speculation. John C. Bogle, founder of Vanguard financial.

http://www.tradernewsandreviews.com/the-death-of-mutual-funds-2-of-4-mutual-funds-lies-consequences-critics/ Underperformance: Not the Word We Are Looking for When it Comes to Money!

http://www.tradernewsandreviews.com/the-death-of-mutual-funds-2-of-4-mutual-funds-lies-consequences-critics/ Not only do the fund managers tend to underperform the S&P 500 yearly, but the underperformance also has grown more pronounced over the years.

http://www.tradernewsandreviews.com/the-death-of-mutual-funds-2-of-4-mutual-funds-lies-consequences-critics/ The individual managers responsible for funds are now marketed as stars. The truth is theyre not stars, but comets.

http://www.tradernewsandreviews.com/the-death-of-mutual-funds-2-of-4-mutual-funds-lies-consequences-critics/ Investors and potential investors are subject to the billions of dollars of advertising promotion of the virtues of funds and mutual fund managers who are supposedly skilled in handling their money.

http://www.tradernewsandreviews.com/the-death-of-mutual-funds-2-of-4-mutual-funds-lies-consequences-critics/ The chances of the fund manager beating the market are small, so small that the average mutual fund only outperforms the market two times out of every five, according to mutual fund researchers.

http://www.tradernewsandreviews.com/the-death-of-mutual-funds-2-of-4-mutual-funds-lies-consequences-critics/ Still Not Convinced? Consider This:

http://www.tradernewsandreviews.com/the-death-of-mutual-funds-2-of-4-mutual-funds-lies-consequences-critics/ Through the end of 2001, there were 1226 actively managed stock funds with a five-year record.

http://www.tradernewsandreviews.com/the-death-of-mutual-funds-2-of-4-mutual-funds-lies-consequences-critics/ Their average annualized performance trailed the S&P index by 1.9% per year (8.8% for the funds and 10.7% for the index).

http://www.tradernewsandreviews.com/the-death-of-mutual-funds-2-of-4-mutual-funds-lies-consequences-critics/ Through the end of 2001, there were 623 active managed stock funds with a ten year record.

http://www.tradernewsandreviews.com/the-death-of-mutual-funds-2-of-4-mutual-funds-lies-consequences-critics/ Their average annualized performance trailed the S&P 500 by 1.7% per year (11.2% for the funds and 12.9% for the index).

http://www.tradernewsandreviews.com/the-death-of-mutual-funds-2-of-4-mutual-funds-lies-consequences-critics/ The figures above include the sales loads charged by many funds.

http://www.tradernewsandreviews.com/the-death-of-mutual-funds-2-of-4-mutual-funds-lies-consequences-critics/ Loads are akin to brokerage commissions, which come straight out of your returns.

http://www.tradernewsandreviews.com/the-death-of-mutual-funds-2-of-4-mutual-funds-lies-consequences-critics/ They are charged when you buy or sell shares of your fund.

http://www.tradernewsandreviews.com/the-death-of-mutual-funds-2-of-4-mutual-funds-lies-consequences-critics/ Even with these load funds excluded, the five-year average trailed the S&P 500 by 1.4% per year, and the 10-year average return trailed by 1.4% as well.

http://www.tradernewsandreviews.com/the-death-of-mutual-funds-2-of-4-mutual-funds-lies-consequences-critics/ These figures include discarded mutual funds, which would reflect poor performance and bring these averages is down significantly.

http://www.tradernewsandreviews.com/the-death-of-mutual-funds-2-of-4-mutual-funds-lies-consequences-critics/ The exclusion of these mutual funds is called survivorship bias.

http://www.tradernewsandreviews.com/the-death-of-mutual-funds-2-of-4-mutual-funds-lies-consequences-critics/ With returns correlated for survivorship bias, average actively managed funds trailed the market by about 3% per year.

http://www.tradernewsandreviews.com/the-death-of-mutual-funds-2-of-4-mutual-funds-lies-consequences-critics/ Cost will drag down your performance. Fund managers are supposed to be good, and some of them are, only we dont know which ones are good until the returns come in.

http://www.tradernewsandreviews.com/the-death-of-mutual-funds-2-of-4-mutual-funds-lies-consequences-critics/ Most managers, unfortunately, will only equal the market as a whole before cost.

http://www.tradernewsandreviews.com/the-death-of-mutual-funds-2-of-4-mutual-funds-lies-consequences-critics/ Another cost of owning a mutual fund is cash drag.

http://www.tradernewsandreviews.com/the-death-of-mutual-funds-2-of-4-mutual-funds-lies-consequences-critics/ Cash is frequently held by mutual fund managers to maintain liquidity for potential transactions and potential redemptions by mutual fund owners.

http://www.tradernewsandreviews.com/the-death-of-mutual-funds-2-of-4-mutual-funds-lies-consequences-critics/ This may stifle the performance of a mutual fund if stocks increase in value greater than the cash held.

http://www.tradernewsandreviews.com/the-death-of-mutual-funds-2-of-4-mutual-funds-lies-consequences-critics/ According to a study by William ORielly, CFA, and Michael Preisano, CFA, the average cost from cash drag on large cap stock mutual funds over a 10-year time horizon was .83% per year.

http://www.tradernewsandreviews.com/the-death-of-mutual-funds-2-of-4-mutual-funds-lies-consequences-critics/ This cost results from investors paying the mutual funds expense ratio on 100% of the money invested despite the fact that not all of the assets are invested into stocks or other securities.

http://www.tradernewsandreviews.com/the-death-of-mutual-funds-2-of-4-mutual-funds-lies-consequences-critics/ Performance Killers:

http://www.tradernewsandreviews.com/the-death-of-mutual-funds-2-of-4-mutual-funds-lies-consequences-critics/ What drags performance down are the management fees, trading costs, sales loads, and other incidentals.

http://www.tradernewsandreviews.com/the-death-of-mutual-funds-2-of-4-mutual-funds-lies-consequences-critics/ And thus, direct and indirect costs defeat the performance of mutual funds before you get your feet wet.

http://www.tradernewsandreviews.com/the-death-of-mutual-funds-2-of-4-mutual-funds-lies-consequences-critics/ Mutual funds must disclose that past performance is not indicative of future results.

http://www.tradernewsandreviews.com/the-death-of-mutual-funds-2-of-4-mutual-funds-lies-consequences-critics/ Unfortunately, most investors and financial media use past performance as their primary selection criteria.

http://www.tradernewsandreviews.com/the-death-of-mutual-funds-2-of-4-mutual-funds-lies-consequences-critics/ The truth is, most mutual funds rarely outperform the markets for a significant period of time.

http://www.tradernewsandreviews.com/the-death-of-mutual-funds-2-of-4-mutual-funds-lies-consequences-critics/ Let me put this fact in bold so you can see it with your own eyes and comprehend the power of this statistic.

http://www.tradernewsandreviews.com/the-death-of-mutual-funds-2-of-4-mutual-funds-lies-consequences-critics/ Only one fund in the history of mutual funds has outperformed the S&P 500 for more than 10 years straight!