Most folks I know seem to pride themselves on getting a good deal everywhere but their investment portfolio. The funny thing is that this one oversight could easily undo all of the bargains you’ve ever struck anywhere else and then some. If there’s one place you should strive to keep costs low and maximize your return on investment its in your investments themselves. Einstein called compound interest “the most powerful force in the universe” so by ignoring your costs you’re essentially neutering your best chance at achieving real wealth.
I’ll go so far as to say that if you’re still letting your “adviser” sell you actively managed mutual funds you are part of a dwindling minority that should be horribly ashamed of itself. I’ve been trying for some time to come up with a metaphor for owning these things. The problem is no matter how many things I think of none convey the magnitude I’m looking for so I’m starting to come to the conclusion that they just might be the biggest ripoff in America.
In fact, I came across the following blog post over at a site called “Shrinkage Is Good” (not sure I like the title even though the post is right on the money). It lists the “12 Biggest Ripoffs in America” and sagely includes actively managed mutual funds in its rundown. Look at the other items on the list and you’ll start to understand why these funds are included: movie theater popcorn, college textbooks, branded painkillers, hotel mini-bars, in-room movies and printer ink. What do all these things have in common? They carry astronomical prices for mediocre products.
Now I believe that actively managed mutual funds top the list. They are the biggest ripoff in America for two main reasons: first, they cost about 10 times as much as passive investments. Second, they are worse than mediocre; they are straight FAIL in one of its purest forms. The bottom line is the vast majority of these things perform worse than an index fund and charge you an arm and a leg for the pleasure.
This is why money is pouring out of these things and into ETFs. It’s a tidal shift that is leaving you and your “adviser” behind. And if you don’t do something about it all those costs and crappy performance are going to leave you high and dry.
To learn how to take control of your investments in a confident and cost-effective way request a copy of my eBook “FIRE Wall Street” here.
- How the industry takes an unfair slice of your mutual funds (The Globe and Mail)
- Almost All of Wall Street Got 2012 Market Calls Wrong (Bloomberg)
- Investors Sour on Pro Stock Pickers (WSJ)
- 88% Of Hedge Funds, 65% Of Mutual Funds Underperform Market In 2012 (Zero Hedge)
- Amateur Investors Have A Few Key Advantages Over Professionals (Business Insider)
- This Guy Turned $20K Into $2 Million (You Can, Too) (Bloomberg)