Some
Revelations about Mutual Fund Managers Performance
Mutual Fund Managers often tout that they have done much
better than the market during a particular year even several years in a
row. Let’s look at how fund managers
actually perform over a longer period of time.
According to the New York Times, (Mark Hulbert, “The
Precedent are Few”, July 13, 2008, http://www.nytimes.com/2008/07/13/business/13stra.html)
of 2,076 actively traded mutual funds from 1975 to 2006, 99.4% were beaten by
the market. That leaves a very small
number of fund managers, only 0.6% or about 12 of these fund managers, which
actually did better than just placing your money in indexed funds, or funds
that simply follow the entire market.
What is this telling us?
If you are going to invest in an actively traded mutual fund, the chance
that you will make money over and above the market index is statistically 0%
and any time a fund manager beats the market, the result is simply a lucky
break.
Now, let’s talk about fees.
Mutual funds are not free. When
you invest your money in one, you pay a manager to manage those funds. These expenses are known as loads and
fees. Expense ratios range from as low
as 0.2% for index funds to as high as 2.0% and the average equity mutual fund
charges 1.3% to 1.5%. So, do the higher
charges from some mutual funds return better results? The answer is absolutely not. According to the Securities and Exchange
Commission's website: "Higher expense funds do not, on
average, perform better than lower expense funds."
Bottom line, actively traded mutual funds cost you, not make
you money. Stick to indexes and index
funds when looking at investing in the stock market.
Jeff
DeMonbrun is the Chief Operating Officer of Ironclad Wealth Strategies, a wealth
advisory company that specializes in helping their clients eliminate risk and
save money using little known wealth strategies. Learn more at www.ironcladwealth.com.
