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MUTUAL_FUND_STUPIDITY
| MUTUAL FUND STUPIDITY
THE ALCHEMIST by AL THOMAS MUTUAL FUND STUPIDITY For years the
mutual fund industry has been going great guns taking peoples'
money and for the most part doing a very lousy job of making a
good return for the investor. The reason I say that is that 80%
of them cannot meet the results of the Standard & Poor’s 500
Index. The S&P 500 is the most important 500 stocks of the New
York Stock Exchange with a few others thrown in. If you buy any
fund that is not composed of this index you are relying upon the
fund manger to be able to weed out the poor stocks and buy the
best ones. After all he is a “professional” and should know more
than a monkey with a dart. Having been an exchange member and
floor trader I consider it rather easy to go thru the charts of
500 stocks to eliminate the weakest 200 or 300. There are even
services that categorize all the NYSE stocks in 5 categories
from best to worst if he doesn’t want to do the work himself yet
the largest majority of managers can’t seem to make an average
amount of money. By average I mean beat the average performance
of all the stocks in the S&P500 Index. When you go to the
hospital do you want an average doctor operating on you? Mutual
fund managers are financial doctors only they are operating on
your wallet. You sure don’t want your money with Mr. Average.
Funds are luring you to give them money because they have a
lower expense ratio, a famous manager,a specialized category, a
socially responsible portfolio or some other nonsense. Why do I
say nonsense? Because it doesn’t make any difference which fund
you are buying as long as it is outperforming all the others.
There is one sure way to increase your return and that is not to
pay commission. That is called a “load” in the industry and it
might not show when you buy it, but be charged when you sell. No
load funds do as well and better than load funds. Now many funds
are adding redemption fees. It is an excess charge of a flat
dollar amount to as much as 2% of your sale if you sell before a
certain period of time. If their fund is declining they don’t
want you to take your money out so they put this additional
charge as a way of keeping you in. There is a new group of
mutual funds that is called Exchange Traded Funds. There are
hundreds of them and they are becoming the bane of the
traditional mutual funds. These trade like stocks, can be bought
or sold during the day with permanent stop loss orders in place.
The commission charge at most discount brokers is $15 or less.
Their expense ratio runs close to zero so you also save money
there. A win, win, win for the investor. Mutual funds will
discourage investors from buying these only because they don’t
want to lose your account. There are many sources of information
about ETFs and the easiest is www.google.com . Just type in ETF
and you will be inundated with all you need to know. Unless
mutual funds stop chasing customers away with high commissions,
redemption fees and poor performance the ETFs are going to take
a large portion of the investor funds.
About the author:
F*R*E*E investment letter www.mutualfundmagic.com Author of best
seller "IF IT DOESN'T GO UP, DON'T BUY IT!" Never lose money in
the market. Copyright 2004 Albert W. Thomas All rights reserved.
Former 17-year exchange member, floor trader and brokerage
company owner.
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