Posted on 02/16/2009 7:17:04 AM PST by george76
Most investors sustained serious damage to their wealth last year -- damage that, in many cases, will be difficult to recover from. Certainly Wall Street titans, reckless lenders and irresponsible home buyers all deserve their share of the blame.
But one part of the financial world has not received much scrutiny for its role in the evaporation of investor wealth, and that is the mutual fund industry.
Sadly, a gullible public has bought into the idea that steady investments in mutual funds, regardless of market conditions, is the way to make their financial dreams come true.
This is one of the biggest fallacies of investing, and why mutual funds are hazardous to your wealth.
To give you a sense of just how flawed the buy-and-hold philosophy advocated by the mutual fund industry was in 2008, just look at the numbers. According to the mutual fund industry's own Investment Company Institute, investors lost almost $3.7 trillion in mutual funds in 2008.
Yet how often do you read about mutual funds leading the public down a losing path? How often do you hear about a fund manager whose performance was drastically lower than the benchmark?
My problems with mutual funds don't stop merely at poor performance or inept fund managers. There are serious problems with mutual funds that have more to do with the design and structure of these investment vehicles.
Advocating buy-and-hold investing is the backbone thesis of most mutual funds. A fund company will never tell you to move to cash when things get tough because it's just not in their best interest. Because most mutual funds must stay fully invested all the time, their concern for managing risk is secondary to their concern for keeping you fully invested.
(Excerpt) Read more at marketwatch.com ...
I have concentrated on not losing money for the last couple of years.
Are mutual funds required to be fully invested all the time or is that just their “policy”? Where can I go to find a mutual fund that engages in the heretical “timing the market”? Is this what you refer to as a Long/Short Equity fund?
They are trying to destroy faith in the markets so they can take over 401K’s and the rest of the economy.
It’s so disgustingly obvious because they are preying upon people during a cyclical downturn. The facts are that people should invest in this market and that they are trying to scare you into accepting maybe 3% from the government or even losing money as in socioal security, in return for giving up the much larger gains to be had in teh market over time.
It’s rather obvious that if the market is to ever recover, investors will make a huge profit with whatever they invest during the downturn.
No comments - just worth repeating.
That's part of the problem. To be sucessful, stocks need to be moved into cash (or other items) before the market (stocks) decline.
Doing so after the fact only means that you bought high and sold low - never a good investment strategy...
If you are in a mutual fund that does not allow you to move assets at your whim you put your money in the wrong place to begin with. Obviously you need to evaluate various costs, but I could take my money and put it into 100% cash with a few clicks of my mouse.
If all you are using your mutual fund for is to buy and hold a wide variety of investents without putting any effort into managing our own money, well, you should expect returns commenserate with your level of effort...
Ga,
Mutual funds have to follow what is written in their prospectus. This is almost universally to be fully invested.
You might look at the autopilot funds group. or anything else in the l/s category at morningstar.
Dave Ramsey has some good ideas, but other times : not so much.
IMHO
Who's retirement are you planning yours or Uncle Sam's?
But you must leave a significant percentage of the cash in the account absent triggering the death benefit or you get hit with even more taxes than what you paid over time.
Not saying such a plan is not of value, I have one as part of my retirement planning, but I have looked at where I want it as part of the funds I am currently directing toward retirement planning (and in this case life insurance). It is expensive ass life insurance, but some of the tax related aspects make it prudent decision for a (small) portion of my retirement portfolio.
Be cautioned - it does have it's downfalls, particularly if you want to utilize the money before you die...
If you wish a full point by point destruction of this post, please advise.
Market Timing has repeatedly been proved (vitually) impossible.
But you must leave a significant percentage of the cash in the account absent triggering the death benefit or you get hit with even more taxes than what you paid over time.
I wanted to clarify that this was my statement not nufsed's. It was a an html editing error on my part, and wanted to make sure it that statement was not inappropriately accredited to nufsed.
With apologies.
Good move. We can rest assured that the smart wall street money and traders do not ride the market down.
“virtually”
Correcting tag line.
Timing to the day? Not me.
To the month? Maybe.
To the quarter? Most definitely yes and it can make or break a retirement.
"if you took away the 10 best days, two-thirds of the cumulative gains produced by the Dow over the past 109 years would disappear. Conversely, had you sidestepped the market's 10 worst days, you would have tripled the actual return of the Dow."
http://online.wsj.com/article/SB123275782424412007.html
THE INTELLIGENT INVESTORJANUARY 24, 2009.Why Market Forecasts Keep Missing the Mark By JASON ZWEIG.
Apologies if my post came across as recommending (or inferring that I had any capabilities associated with)market timing.
My comment was intended to reflect my opinion that the individual needs to be responsible for their mutual fund asset allocation based on their investment goals. On particular as a response to the statement:
there are new funds that move to cash when the market is falling apart. They do it for you.
While I fully trust that the mutual fund mangers that I send my money to do their best to maximize my returns, I would have considerable concerns if I thought those managers were selling losses at the bottom to get into cash.
Specifically, if I didn't want to change me fund allocation - I don't want someone else to do it for me without my consent (unless built into my agreement with the fund, etc.,).
I have no intent (or ability) to time the market, not that smart, and have no crystal ball. All I want is for my funds to do what they say in their prospectus, and let me make the decisions regarding how to allocate my assests.
Take care.
Every year, Mass Mutual comes to our company and gives the lecture about 401k investing(company’s 401k is through MM). Inevitably, the guy tells us to get into the various funds, but specially the one they have the big interest in. When he came last year, I had just moved to 85% money market and 15% bonds. The Dow was at 12k and Bear Stearns had just fallen apart.
I argued with the guy that people should just move to safe positions until all the bank stuff gets settled. He used the old refrain “the market always goes back up, don’t be a chump and sell low and buy high!, you’ve got years to retire”
It never went up the rest of the year. I moved some of it back recently, but I’m still 65% money market. I figure if the whole thing unravels and the dollar collapses, none of it is going to matter anyway, but if the market does go up, I’ll capture some of the gains.
We seem to be going down the same path that has led to nearly two decades of economic stagnation and declining stock prices in Japan. Now Japan seems to be headed over another cliff , too.
The long term bottom may be long time from now.
Short term trading bottoms will happen every few months.
Amen to that.
See post 74 for some eye opening stats.
Sounds like you made an excellent move. We should all be so wise... :-)
Thanks and take care.
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