Investment Advice

J

Josiah

Senior Member
Location
50 miles east of Cincinnati, OH
As someone with a lot of assets in mutual funds I found this short piece a bit upsetting.

[h=2]Factlet of the Day: Mutual Funds Suck[/h]—By Kevin Drum
| Sun Mar. 15, 2015 2:50 PM EDT


Jeff Sommer summarizes the results of actively managed mutual funds over the past five years:
If all of the managers of the 2,862 funds hadn’t bothered to try to pick stocks at all — if they had merely flipped coins — they would, as a group, probably have produced better numbers.
​
I am not an investment advisor, so do whatever you want to do. But if you're smart, you'll invest in a few low-fee index funds and then just leave them alone. That is the path of wisdom.

 

Josiah said:
As someone with a lot of assets in mutual funds I found this short piece a bit upsetting.

Factlet of the Day: Mutual Funds Suck

—By Kevin Drum
| Sun Mar. 15, 2015 2:50 PM EDT


Jeff Sommer summarizes the results of actively managed mutual funds over the past five years:
If all of the managers of the 2,862 funds hadn’t bothered to try to pick stocks at all — if they had merely flipped coins — they would, as a group, probably have produced better numbers.
​
I am not an investment advisor, so do whatever you want to do. But if you're smart, you'll invest in a few low-fee index funds and then just leave them alone. That is the path of wisdom.
Click to expand...

Good Advice!
 
I have two small mutual funds. One is an index fund, and the other is a very conservative fund. Yes, the index fund has finally recovered from the crash of 2008, but it has taken a long time. The other fund did ok, though not great, even through the crash. Probably depends on how long you have to wait to start withdrawing. If I were depending on that index fund for a 401K retirement package, and had to start withdrawing around 2008, I'd have been scared silly.
 

I dunno -- I've always taken the advice of my adviser at USAA and I've done fine. I do believe that taking the advice of an experienced adviser (one who has nothing to gain from selling you a particular thing) is the best way to go. All those guys who flipped coins could have also come up wrong and lost their butts, depending on which way the coins came up. For myself, I don't believe in flying blind.

I DO believe that in a volatile market you have to be careful of having too much in aggressive, high-risk mutual funds. You might make it big, or you might end up in a hole.
 
You are a very wise person by being connected with USAA. Honesty and integrity come to mind. Many years ago (1954) I insured my first car with them and I have been with them ever since. (Auto Insurance/Credit Card/Umbrella Insurance/Home Insurance) Today, my daughter, grandson, and stepson have their insurance with them.
 
"In study after study, year after year, it has been shown that the vast majority of actively managed mutual funds underperformed their [benchmark index funds]" -- Jim Cramer
chart-active-manage.jpg
 
I have been an individual stock investor for many years. One reason.... I wanted more investments in dividend stocks than what some money managers had in their funds. And some index funds that focused on dividend stocks were over weighted in banks which I did not like. But there are more index choices since the last crash. I am reducing my individual stocks and reallocating to index funds. One is dividend specific, the other focused on value. Will give me better diversification. Plus as I age, not wanting to have to follow individual companies anymore. I imagine I will obtain better result with index ETF's than my old method. ;)
 
There are thousands of Mutual Funds out there...and only a small number that actually rank consistently high in the Lipper and Morningstar rankings. If a person chooses wisely, and monitors their choices frequently, they can usually maintain their retirement funds...and even make some decent gains. The markets are very fluid, with many Ups and Downs, and successful investing requires some active participation on the part of the investor. Merely trusting some Investment Adviser, or fund managers to do the job is more risk than I am willing to take.

At the risk of "jinxing" my holdings, I am happy to say that after withdrawing a nice monthly sum from my IRA for over 13 years, I have slightly more in that fund than when I started pulling money out. I check the market news daily, watch CNBC every morning at breakfast, and move the funds around 2 or 3 times a year...as market conditions dictate. Given the truth in the saying, "Go Away in May, Come Back in October", I am very close to moving most of the funds into the Money Markets and Municipal Bonds for the Summer. This is the time of year when the markets often begin to tank....and Must be watched closely.
 
Mutual funds have been known for their short comings for decades from anything to excessive fees to buy & hold managers who let the fund decrease. But there are some out there that do ok.

The thing to remember with mutual funds as with stocks is that are you buying them to sell at a higher price later or to receive dividends & distributions on a regular basis. People think stocks and funds are all about buying low and selling high but forget many give regular or semi regular payouts in the way of dividends etc. A fund could do both.

I've had better luck with income or bond funds which give more payouts compared to general stock funds.

And just like stocks you have to pay attention, sometimes you have to sell. A fund could be doing great but until you cash in at a profit or get a payout you didn't make squat. For dividends and distributions you have to look at the trailing or sec yield. There are funds paying 5-8% a year, it changes but I survived 2008.

Also look at fee or loads including a front end or back end load. You want the lowest fee structure possible unless you are in some kind of hedge fund doing 10-20% per year. Check to the minimum amount of shares/price you must pay to add to the fund. Some have 2500 dollar minimum while others have none or 50$.

I'd say first decide what you want out of a mutual fund-profit or regular payouts.
 


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