Mutual funds may be the most efficient and easy way for individuals to participate in the stock market, yet the average fund investor has not made anything like the market’s returns since 1984. What’s going on here? There are two problems, both related to average investor behavior: one is the urge to pay someone to beat the market; the other […]
Investment tax relief does not end tax planning
Congress has passed a massive tax cut package that gives special relief to investors. Lower capital gains tax rates and an exclusion for stock dividends eases the tax burden on those who realize investment gains in taxable accounts. However, investors still have to manage the tax impact of their investments correctly in order to maximize their gains. Under the new […]
Buy and hold is not dead, instead, it is ahead
Stock traders and brokerage houses looking for trading commissions love to deride “buy and hold” investment strategies. They use market downturns like the recent bear market to “prove” their points: that smart investors could have sold out of growth stocks in 1999 or 2000 and avoided the subsequent carnage, while getting back in early this year in time for the […]
Client Letter – Q2 2003
Since last quarter, most equity asset classes have experienced huge rebounds! Finally, your patience has been rewarded! Reuters reported that the S&P 500 had its “best quarter since 1998”—even though its quarterly return (about 15%) was less than that of many other equity asset classes. For example, some of the top performing asset class funds in my portfolios included the […]
Low expenses are a key to mutual fund success
It costs money to run a mutual fund and investors should gravitate toward funds that cost less than average to operate. Mutual funds as a class of investments are excellent low-cost instruments for most investors. But their low-cost average obscures those funds whose operating costs are significantly higher than average. Operational costs detract from a fund’s net return. A fund […]
Go worldwide for best diversification
The average American investor seems to have myopia about investing outside of the United States. That is a shame because diversification is the key to a successful portfolio, and foreign stocks and bonds offer tremendous diversification benefits. Back in 2000—the last full year where more stock mutual fund shares were purchased than sold—domestic stock funds had net inflows of over […]
The key to higher and safer returns
Asset allocation has become a popular buzzword, often used by investors but not fully understood. Why would anyone bother trying to build a portfolio that includes a wide variety of different financial assets? The answer is easy: a well-diversified portfolio will deliver a higher long-term return at a lower risk level than any of its components. This result can be obtained […]
Bond owners will suffer if rates stop falling
Investors ignored bonds during the late 1990s when interest rates were much higher than they are today. Now, with rates at historic lows, investors are flocking to bonds. Go figure. The reasons for the flight to bonds, evidenced by record inflows into bond mutual funds last year, are obvious: A grinding bear market for stocks has left investors looking for […]
Mutual fund buyers forget to check fees
Out of sight, out of mind: At least that seems to be the case when it comes to mutual fund investors and their costs of investing. Mutual fund buyers seem to have become very educated about visible sales commissions in recent years. However, they still don’t seem to pay attention to high, but hidden, operating expenses, a trio of finance […]
How mutual fund companies bury their mistakes
The mutual fund industry has an open secret: each year it buries hundreds of funds that couldn’t make it. Some of these funds were small unknowns while others were yesterday’s popularity club winners, unable to repeat their success in changing markets. Remember Munder funds and Amerindo funds, two big technology and Internet stock investors of the late 1990s? Well, only […]
