The Case Against Mutual Funds Part 5

The Zero-Sum Game. Investing in a stock is participating in the profits of a company. It is possible for a group of shareholders to buy stocks in a company and all win together. Ideally, there are no losers as all shareholders participate in the value creation of the company and its employees. Correspondingly, investing in […]

The Case Against Mutual Funds Part 4

Checking Historic Performance. As we’ve already discussed, the combination of short-term performance constraints and the fees charged makes it nearly impossible for all but the luckiest of fund managers to succeed. Here’s the sad truth from some recent research . The good news is that 7.8% of funds actually outperformed the S&P 500 over that […]

The Case Against Mutual Funds Part 3

Comparing Their Top 10. So is there indication of “closet indexing” in the mutual funds you own? Most, if not all, mutual funds publish a marketing fact sheet that details fees, historic performance and their top holdings. As an example, it would be instructive to compare the largest companies in the S&P500 against the top […]

The Case Against Mutual Funds Part 2

How Money Managers Keep Their Jobs. Mutual funds make money by charging its unit holders a fixed percentage each year (typically between 1% to 3%) for managing its investment portfolios. Total revenues of the fund company is a fixed percentage of all Assets Under Management (AUM) of the company’s funds. The greater the AUM, the […]

The Case Against Mutual Funds Part 1

How 1% becomes 30%. Mutual funds make money by charging fees to unit holders. Good or bad, up or down, fees are deducted from unit values. Management Expense Ratios (MER) typically range from 1% to as much as 3% each year. This means that even if you’ve purchased the lowest costing mutual funds (e.g., MER=1%), […]