Mutual Funds

A mutual fund is a public fund available for nyone to buy into. In most cases, they are actively managed by a team who assembles a portfolio of stocks, bonds, or other assets classes and continually trades their holdings in hopes to beat the market.

Mutual fund companies are notorious for opening lots of funds in hopes that a few of them might outperform.

Mutual funds carry high fees which may seem insignificant at the time however as the fund manager is constantly buying and selling they can mount up significantly, which will seriously impact your profits over the long term.

Mutual funds are actively managed, which means they’re run by people who attempt to pick the best investments at the best time. Their goal is to “beat the market.” They’ll attempt to outperform unmanaged Index Funds such as the S&P 500 index. The difference is, actively managed mutual fund companies charge fat fees in return for this service.

96% of mutual funds failed to beat the market over a 15-year period.I The result? You overpay for underperformance. “When you look at the results on an after-fee, after-tax basis, over reasonably long periods of time, there’s almost no chance that you end up beating the index fund.”- David Swensen, He studied all 203 actively managed mutual funds with at least $100 million in assets, tracking their returns for the 15 years from 1984 through 1998. Only 8 of these 203 funds actually beat the S&P 500 index, less than 4%! That means 96% of actively managed funds failed to add any value at all over 15 years! You’re really betting on is your ability to pick one of the 4 percent that outperformed the market.

Of the 248 mutual stock funds with five-star ratings at the start of the period, just four still kept that rank after 10 years. Hypothetically, if your Index Funds outperform those actively managed funds by 1% annually. In total, you’ve added 2% a year to your returns. This alone can give you 20 years of extra retirement income.

Steer clear of actively managed funds, especially those that trade a lot.

  • A Customized Approach to Asset Allocation
    • Use Index Funds for the Core of Your Portfolio because they give you broad diversification in the most low-cost, tax-efficient way. They beat almost all Hedge Funds and Mutual Funds over the long run. For maximum diversification, we want exposure to stocks of all sizes: large-cap, midcap, small-cap, and microcap. By diversifying so broadly, you protect yourself against the risk that one part of the market might get crushed. By indexing, you enjoy the long-term upward trajectory of the market without letting fees & taxes corrode your returns.
  • Alternative Investments
    • Many alternative investments have high minimum buy-in and fee structures, especially when compared to Index Funds, Bonds and Mutual Funds. These investments also have less opportunity to publish verifiable performance data and advertise to potential investors.