We’ve just been through five years of investment fiasco. Rates of return have been negative, certainly not conducive to building a Baby Boomer’s retirement portfolio.
My investment ‘counselor’ says I shouldn’t worry that my meagre investments have averaged –2% (yes that’s negative two percent): after all, the industry average is –5% (or whatever), so we’re doing better, right? Now give me more of your money…
I reply that if I had kept my money in a sock under my mattress, I’d be better off. So he’s dumber than a sock.
If the mutual fund managers really had my interests at heart, they would have predicted the oncoming train wreck, and sold short, or put my money in safe U.S. Treasury bills, at 2%.
Why didn’t they? First, they’re too incompetent to have seen it coming. So why am I paying them good money? They operate on the the theory that a rising tide floats all ships (did Shakespeare say that?) Their mantra is: the stock market always rises, so on the average we can always expect a portfolio to grow.
(I can’t believe these guys: if the market is up, they tell you that you gotta buy because there’s profit and opportunity. And if the market is down, you gotta buy because the stocks are a bargain and they’re bound to rise again.)
Another reason is that if everyone had pulled out of stocks at the same time, there would have been a disproportion of sellers to buyers, and a catastrophic fall in stock prices. To preserve industry stability, mutual fund managers kept their holdings and exposed their clients to losses. Thus, there is a systemic, built-in bias in the mutual funds industry against the suckers small investors and in favour of the big guys.
A wise friend of mine did well during this period by shrewdly moving his money in and out of bonds, and other hand-picked securities. I just don’t have the time to acquire the expertise to do this. I thought that was what I was paying the fund managers to do.
Here’s an interesting tidbit: it’s called the Midas Strategy. Some guy analyzed decades of fund histories, and figured out that, every three to six months, you should move your money into the fund(s) that have had the best rate of return. You won’t catch them at their peak, but the record shows that the top performers continue to be above average for several months after they reach the pinnacle. You will ride the crest and outperform the market.
Unfortunately, this only works in theory, because funds lock you in and won’t allow you to pull your money out at the drop of a hat.
I guess poor fund performance is just the price we have to pay for 3% mortgages, the lowest since World War II. You can’t eat your cake and have it. You can quote me.