 Mutual Fund StupidityPublished Date: 2004-12-08 08:41:11 WorkOnInternet.com
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 http://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. F*R*E*E investment letter http://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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