It's legal. And it's a lie. It's an amazing truth about this highly regulated industry. Understanding these contradictions can make a big difference as you decide how to invest your money for your future. The most amazing disconnect: The mutual fund industry exists to protect and grow your money. Turns out it's a myth, an illusion, the stuff of dreams, or maybe even a nightmare. And it's amazing how much time, money, and effort is spent to cover up this most important fact. The truth is, the mutual fund industry just doesn't grow your money that well.
Taking a look at how all mutual funds invest, 85% of them are "actively managed." This is basically anything that isn't an index fund or a value fund. This means that they invest in various stocks, bonds, and money market funds, have an investment objective, and are actively managed by a portfolio manager. But even many value funds are actively managed. So if you add in that 5%, 90% of mutual funds are actively managed, leaving only 10% to "unmanaged" index mutual funds.
A study done for the New York Society of Security Analysts, covering about eight years, from 1997 to 2005, compared the 20 largest mutual funds. They were compared to the S&P 500. One thing that was found was that out of the 20 largest mutual funds, five were either closed down or merged into another fund. This is an example of how their behind-the-scenes work serves them, not the investor. When a fund family has a bad mutual fund, they get rid of it. Fund managers just make it disappear and recombine the assets with other funds.
One result of this is you can't find the returns on that mutual fund. A company can't have funds that make that mutual fund company look bad if their main purpose is to market funds, after all.
This manipulating of returns is called "survivor bias." If you're in a mutual fund that's underperforming, they will merge you into another mutual fund and delete the history of the bad performer. When an investor looks at a mutual fund company, of course the company will promote all their great performing funds of that moment. It's all a part of the great deception.
Even though they always issue the standard disclaimer that past performance doesn't indicate future results, they know that showing those great returns over the past year or two will entice you in. Of course, they also know this is not likely to be the best thing for you. Also, they will continue to shut down the bad funds. An investor can never get a true picture of the performance of a fund company because of the way they manipulate their numbers.
What the previously mentioned research from 1997 to 2005 found was these 20 largest mutual funds grew by an average of -9% a year. This information will never be found in a press release from any fund companies. From 1997 to August of 2005, these funds were losing 9% a year. During that same time period, the S&P 500, available in an unmanaged index fund, was growing at -2.7%. So this was still losing each year, but nowhere near as bad as -9% each year. These 20 largest funds did three times worse than an unmanaged, cheaper index fund. It's important to know this often-hidden information before investing money in the market.
RC Peck, CFP®
Registered Investment Advisor, Founder of Fearless Wealth
Investment Education for Successful Professionals.
http://www.fearlesswealth.com
RC has recently released a special report called, "29 Minutes to Investment success," which outlines "One Tool" that causes mutual fund managers to tremble and stockbrokers to weep with fear.
Discover how the "One Tool" can revolutionize your investments today. Click here to get the "One Tool" http://www.TheStockMarketStrategy.com
Article Source: http://EzineArticles.com/?expert=Ronald_Peck
No comments:
Post a Comment