Are Mutual Funds Worth It?



Mr. Dumbs: This is your opinion. I agree with Elizabeth's definition of investment success.

The only reason I respond consistently to your posts is to contrast the view of a get-rich-quick, risk-taking, timing type with those who know that slow-and-easy wins the race.
Live within your means. Save regularly. Invest in broad, low cost index funds, diversified so as to include high grade bonds and/or CDs. Too many blew off the high grade bonds/CDs in recent years. The reason I am sleeping well these days is because of my bonds/CDs allocation.
You imply it is easy to beat the market in the long run. All reputable research on this indicates the opposite.
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On Jan 25, 12:24 pm, snipped-for-privacy@gmail.com wrote:

Interesting. May I suggest that perhaps what we are looking at here is a gradient of "investing"?
From I ain't got no money! Jobs and savings accounts to T-Bills and bonds with time the principal horizon to mixes of Treasuries with index funds to mixes with stock funds to funds and maybe some companies' stock to one's own portfolio to super managed money (whatever that is) to opening up one's own hedge fund to giving it all the Bernie Madoff (which brings us full circle)
To what we all do from time to time - speculating on what life is all about?
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Defeatist approach? We're retired. I'm 63, my husband will be 54 in a couple of weeks. I invested so we'd have enough. I have other things to do with my life. Oh - and no gold-plated wheelchair for me. I walk some 40 miles a week - 9 miles yesterday in 2:10, a half marathon a week ago in a little over 3 hours beating my 23 year old granddaughter who ran.
Elizabeth Richardson
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"The goal"? The only goal? Maybe for you, but you ain't everybody. Some people are lucky enough to like their work.
I tell my daughters that money is freedom. Yes, freedom to retire if you want. But also freedom to travel, freedom to live where you want, freedom from many worries, freedom to take time off to care for a relative...
-- Doug
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Coffee's For Closers wrote:

And you can't win the lottery if you don't buy a ticket. The question is, is the work likely to be of any benefit? And will the benefit be enough to compensate for the work?
You can get average with almost no work.
Brian
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On Fri, 23 Jan 2009 11:19:28 -0600, snipped-for-privacy@fractious.net wrote:

That's how I feel about burning wood instead of oil etc. I've got better things to do. Thumper
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HW "Skip" Weldon wrote:

Agreed. Ask the highly trained and well-read financial advisers that bought into Madoff Investments. Everybody can be conned, when greedy, except maybe a Corleone.
Chip
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Most people, even educated people, have neither the time nor the inclination to become investment experts. They often, very reasonably, feel that their time is best spent doing the things they are best at - and financially, that's often just a matter of them doing their jobs, whatever they are.
There's no need for investing to be a full-time job or even for it to suck up much of their time. But there is an enormous incentive within the industry to try to sell the notion that it can only be done by experts and that folks need complex products. Most folks don't, and most of their investing needs can be handled through very simple portfolios. But how to tell this quiet truth over the din of advertising and "advisors" selling products (with some of the slickest marketing materials I've ever seen)?
Sadly, it's almost as difficult to pick an advisor as it is to pick a fund or a stock. But there are some good guidelines out there and folks either need to spend a lot of time educating themselves, or they have to choose to trust someone, sometime. And much of the value of a great advisor is not even the selection of stocks or funds - a great advisor helps an individual with other issues which may outweigh the security selection choices by a long shot - things like getting them to max out retirement plans (or at least get the full value of an employer match), titling assets and accounts correctly and naming appropriate beneficiaries, making sure they have the right kinds of insurance, etc and how to take advantage of tax issues (like tax loss harvesting), and maintaining discipline.
It'd be nice if there were more unbiased investor and financial education out there. Folks should know how to balance a checkbook (even if they don't actually do so - and whether to bother balancing it each month or not is a whole other discussion). Folks should understand compound interest. And marginal tax rates. But who's going to teach all that? At the moment, folks need to be self-motivated and capable of distinguishing the real education from the sales materials. And it's that latter problem which may be hardest of all.
In the meantime, how much better off would the average investor be if he'd just gone with a 60/40 broad index- based portfolio and left it alone, versus all the ongoing, often conflicting advice out there? It's about as uninteresting and unglamorous as it gets, but the long-term return of such a portfolio is surprisingly good. Since '92, that portfolio has had almost the same compound return as a 100% stock index (a bit under 7%) - with only about 2/3 the volatility. Over the last 10 years, it's beaten the 100% stock index handily. With a little bit of tweaking the asset allocations, it may be possible to beat that - slightly better return and/or lower volatility. But that simple benchmark is a heck of a good starting point, and that portfolio can be built and managed easily for less than 15bp/yr.
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At the very least, people with limited spare time can read a couple of books like "Investing for Dummies" or "Mutual Funds for Dummies" and get some basic information, enough to steer clear of scams and avoid major pitfalls. Also, they can make use of many web resources and read newsgroups like this one.
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Picking funds is as difficult as picking stocks.

Many funds have low management fees and it's difficult to hold stocks over a long period of time so brokerage fees aren't much of an improvement.
An advantage of a full service brokerage is that you can borrow against your investments to meet emergency needs to avoid bad tax consequences.

investors need diversification, but having only one fund doesn't give all the advantages of diversification. It's better to have an assortment of funds and stocks. I feel more comfortable with about 30 stocks, but if an investor has a considerable amount in broad funds, the number of stocks can be less.
ETFs allow an investor to get into markets (foreign and commodity) that aren't available through conventional stock buying.
-- Ron
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On some mutual funds, the fees are so low that they are not material. For example, fees on Vanguard index funds are usually under 0.2%.
Also, using your discount broker, you can buy securities that represent some stock index, for example symbol SPY represents 1/10 of S&P500. SPY has very low management fees and some advantages over mutual funds.
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joeDOTweinsteinATgmailDOTcom wrote:

Some brokerages allow reinvestment of distributions for ETFs without incurring a transaction.
Brian
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Because it is expensive to maintain the portfolio of individual stocks so that it tracks an index. Back of the envelope calculations: The annual turnover of the S&P 500 is on the order of 3%. So figure a total of 15 sell orders and 15 buy orders a year at a cost of $10 per transaction. It will cost you $300 a year to track the index.
The annual expense ratio of a popular S&P 500 ETF, say SPY, is 0.08%.
So an amount invested in the ETF that is less than $375,000 ($300/.0008) will produce lower annual costs than buying a basket of individual stocks.
Many caveats attach to this example, but the point is that, if one wants diversity, low cost index funds are a bargain for many people.
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snipped-for-privacy@gmail.com wrote:

Not to mention the 500 transactions needed as you continue to save or draw down.
-Will
william dot trice at ngc dot com
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At one time I found it complicated to work with DRIPs at tax time. In recent years, however, my companies do the calculations, and I just turn over a slip that comes in the mail to my tax preparer. If you are able to do your own taxes, the DRIP part still should be easy, at least in the case of my particular companies.
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A capital gain distribution no more "complicates" the basis of a mutual fund than an ordinary dividend "complicates" the basis of an individual stock.
-- Rich Carreiro snipped-for-privacy@rlcarr.com
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Years ago a major fund got a new manager, who liquidated all existing positions. I'm not kidding. December 28th, holders got a surprise: more than 35% distribution, over 68% of which was short-term. That put a few "complications" into a lot of people's tax planning. It probably made more than a few wish they hadn't signed on for automatic reinvestment, too. The following year, that manager 'departed the firm to pursue other career interests' (or something like that). The predictability of funds is only partial, long, short, divs, or interest.
Compare to Mobil Oil (now XOM), arguably a "buy with your eyes closed household name", purchased in 1985. At a closing price Friday of $78.04, the annualized appreciation is 11.66%, current yield on cost is 26.32%. (I'm just *sure* someone will say, "Well, Buffett got 35%" or find some other objection :-) I'm sure there are many other similar stocks individuals "wisely" bought, or are now buying.
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Rich Carreiro wrote:

You're right, of course. What I really meant is that the automatic reinvestment of capital gains distributions that often occurs when investing in funds complicates the tracking of the basis of individual shares of the fund that are owned. Is that better wording?
-Will
william dot trice at ngc dot com
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No. :-)
Many (most?) brokers will allow free reinvestment of dividends from individual stocks. And heck, back in the investment club hayday, DRIP plans were all the rage. Either way, they'll "complicate" things for individual stocks as much or as little as distributions "complicate" things for mutual funds.
-- Rich Carreiro snipped-for-privacy@rlcarr.com
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Rich Carreiro wrote:

That's why I specifically noted DRIPs as having a similar complication.
-Will
william dot trice at ngc dot com
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