Comments on: Why my friend invests in an insanely expensive fund and why I don’t http://www.iwillteachyoutoberich.com/blog/why-my-friend-invests-in-an-insanely-expensive-fund-and-why-i-dont/ Personal finance blog for college students, recent graduates and everyone else -- including entrepreneurship -- for getting rich. Featured in the Wall Street Journal and New York Times. Sat, 21 Nov 2009 06:31:52 -0800 http://wordpress.org/?v=abc hourly 1 By: mark http://www.iwillteachyoutoberich.com/blog/why-my-friend-invests-in-an-insanely-expensive-fund-and-why-i-dont/comment-page-1/#comment-102563 mark Thu, 02 Jul 2009 21:24:11 +0000 http://www.iwillteachyoutoberich.com/blog/why-my-friend-invests-in-an-insanely-expensive-fund-and-why-i-dont#comment-102563 Why would anyone invest in mutual funds at all? When the game is rigged so only those high up in the corporate structure,or those who invest millions prosper only. While you dumb,dumbs get flogged with el stupido MER's,and a mutual fund consultant who says you can't possibly lose over the long haul. That's BS. Most people shouldn't invest in stocks or funds because they don't understand it either.You'd have to spend hours every day to get it. It's up to you.I just save my moula in ING high interest accounts and CD's. I may never get 7 or 8 percent,but I won't wonder where the hell my money went,and still get a mutual fund huckster saying, the market I'll go up,just be patient. Yeah,right. Maybe I'm deluded. But you're all lemmings going to the slaughter. Have fun. Why would anyone invest in mutual funds at all?

When the game is rigged so only those high up in the corporate
structure,or those who invest millions prosper only.

While you dumb,dumbs get flogged with el stupido MER’s,and
a mutual fund consultant who says you can’t possibly lose
over the long haul.

That’s BS. Most people shouldn’t invest in stocks or funds
because they don’t understand it either.You’d have to spend
hours every day to get it.

It’s up to you.I just save my moula in ING high interest accounts
and CD’s. I may never get 7 or 8 percent,but I won’t wonder where
the hell my money went,and still get a mutual fund huckster saying,
the market I’ll go up,just be patient.

Yeah,right. Maybe I’m deluded. But you’re all lemmings going to the
slaughter.

Have fun.

]]> By: Spread betting trader http://www.iwillteachyoutoberich.com/blog/why-my-friend-invests-in-an-insanely-expensive-fund-and-why-i-dont/comment-page-1/#comment-63728 Spread betting trader Sun, 08 Jun 2008 17:13:39 +0000 http://www.iwillteachyoutoberich.com/blog/why-my-friend-invests-in-an-insanely-expensive-fund-and-why-i-dont#comment-63728 This is an interesting post. What it does reveal is not so much that some firms are willing and able to charge ridiculous fees for often mediocre performance but that humans are subject to several behavioral flaws that show up frequently in our investment decision-making. Yes, studies after studies have demonstrated conclusively that the primary determinant of portfolio returns over a long investment horizon is asset allocation with little benefit ascribed to stock selection. Of course, in any given year, you will get a few managers that will achieve exceptional performance. However, an overwhelming amount of studies have demonstrated that most fund managers are unable to outperform the market index on a consistent basis. That is not to say that there is no room for short term <a href="http://www.spreadbettrader.co.uk/spreadbettingservices.html" rel="nofollow">trading or stock picking</a> - just that it should represents a small potion of ones overall portfolio. This is an interesting post. What it does reveal is not so much that some firms are willing and able to charge ridiculous fees for often mediocre performance but that humans are subject to several behavioral flaws that show up frequently in our investment decision-making.

Yes, studies after studies have demonstrated conclusively that the primary determinant of portfolio returns over a long investment horizon is asset allocation with little benefit ascribed to stock selection. Of course, in any given year, you will get a few managers that will achieve exceptional performance. However, an overwhelming amount of studies have demonstrated that most fund managers are unable to outperform the market index on a consistent basis.

That is not to say that there is no room for short term trading or stock picking – just that it should represents a small potion of ones overall portfolio.

]]> By: What's an Expense Ratio? | Green Panda Treehouse http://www.iwillteachyoutoberich.com/blog/why-my-friend-invests-in-an-insanely-expensive-fund-and-why-i-dont/comment-page-1/#comment-53174 What's an Expense Ratio? | Green Panda Treehouse Wed, 20 Feb 2008 01:47:55 +0000 http://www.iwillteachyoutoberich.com/blog/why-my-friend-invests-in-an-insanely-expensive-fund-and-why-i-dont#comment-53174 [...] Ramit Sethi has a great article warning against expensive funds versus index funds. [...] [...] Ramit Sethi has a great article warning against expensive funds versus index funds. [...]

]]> By: Andrew http://www.iwillteachyoutoberich.com/blog/why-my-friend-invests-in-an-insanely-expensive-fund-and-why-i-dont/comment-page-1/#comment-41495 Andrew Thu, 22 Nov 2007 00:50:08 +0000 http://www.iwillteachyoutoberich.com/blog/why-my-friend-invests-in-an-insanely-expensive-fund-and-why-i-dont#comment-41495 Where can I find some basic information on investing on this site? I don't need a trading account, $ manager, etc.... I am looking for some simple explanations to understand the basics of world of investing. Just basically looking for en simple education that I can understand at my level. I applaud your passion for money, especially yours! I'm just starting to wake up and smell the coffee in my own life and I have to get my affairs in order before I jump into anything but I find your opinion invigorating and motivational ! Thank you for the jolt ! AM Where can I find some basic information on investing on this site? I don’t need a trading account, $ manager, etc…. I am looking for some simple explanations to understand the basics of world of investing. Just basically looking for en simple education that I can understand at my level.
I applaud your passion for money, especially yours! I’m just starting to wake up and smell the coffee in my own life and I have to get my affairs in order before I jump into anything but I find your opinion invigorating and motivational !

Thank you for the jolt !

AM

]]> By: E http://www.iwillteachyoutoberich.com/blog/why-my-friend-invests-in-an-insanely-expensive-fund-and-why-i-dont/comment-page-1/#comment-41029 E Sat, 17 Nov 2007 08:10:20 +0000 http://www.iwillteachyoutoberich.com/blog/why-my-friend-invests-in-an-insanely-expensive-fund-and-why-i-dont#comment-41029 I manage multi-million dollar portfolios for a living and I can tell you that a 4.5% expense ratio is ludicrous. Any joker out there slinging his companies proprietary product at 4.5% is either getting incredibly rich or living with his/her parents. There are many many other options. Like Ramit mentioned, over the long term, passive management will beat active. However, I step in and manage portfolios within say 10 yrs of retirement. If you have a 98% correlation to the S&P (which is the case with most low expense mutual funds managed by recent Ivy League grads) and the indice takes a dive at year 6 or so....you may not have time to make it up. In this scenario, paying a higher cost to have your positions hedged by professional traders is very beneficial. Furthermore, I would argue that adding non-correlated asset classes as about 10% of your porfolio is a great way to avoid large market swings. Oil/Gas partnerships, REIT's, TIC's, Futures or Options funds, Currency funds, etc are examples of non-correlated (no benchmark or tied in any way to an indice) investment options. And absolutely do not forget over-seas exposure of 20-30%. Great discussion! I manage multi-million dollar portfolios for a living and I can tell you that a 4.5% expense ratio is ludicrous. Any joker out there slinging his companies proprietary product at 4.5% is either getting incredibly rich or living with his/her parents. There are many many other options.

Like Ramit mentioned, over the long term, passive management will beat active. However, I step in and manage portfolios within say 10 yrs of retirement. If you have a 98% correlation to the S&P (which is the case with most low expense mutual funds managed by recent Ivy League grads) and the indice takes a dive at year 6 or so….you may not have time to make it up. In this scenario, paying a higher cost to have your positions hedged by professional traders is very beneficial. Furthermore, I would argue that adding non-correlated asset classes as about 10% of your porfolio is a great way to avoid large market swings. Oil/Gas partnerships, REIT’s, TIC’s, Futures or Options funds, Currency funds, etc are examples of non-correlated (no benchmark or tied in any way to an indice) investment options. And absolutely do not forget over-seas exposure of 20-30%.

Great discussion!

]]> By: Ryan http://www.iwillteachyoutoberich.com/blog/why-my-friend-invests-in-an-insanely-expensive-fund-and-why-i-dont/comment-page-1/#comment-40962 Ryan Fri, 16 Nov 2007 17:22:38 +0000 http://www.iwillteachyoutoberich.com/blog/why-my-friend-invests-in-an-insanely-expensive-fund-and-why-i-dont#comment-40962 Yikes! Yikes!

]]> By: Nick K http://www.iwillteachyoutoberich.com/blog/why-my-friend-invests-in-an-insanely-expensive-fund-and-why-i-dont/comment-page-1/#comment-38625 Nick K Thu, 25 Oct 2007 16:48:23 +0000 http://www.iwillteachyoutoberich.com/blog/why-my-friend-invests-in-an-insanely-expensive-fund-and-why-i-dont#comment-38625 4.5% is a little hard for me to believe! Are you sure this isn't a front-end load? Wow... I hope it's not both a front-end load fund AND a fund with that high an expense ratio. 4.5% is a little hard for me to believe! Are you sure this isn’t a front-end load? Wow… I hope it’s not both a front-end load fund AND a fund with that high an expense ratio.

]]> By: Asti http://www.iwillteachyoutoberich.com/blog/why-my-friend-invests-in-an-insanely-expensive-fund-and-why-i-dont/comment-page-1/#comment-38144 Asti Sun, 21 Oct 2007 05:01:22 +0000 http://www.iwillteachyoutoberich.com/blog/why-my-friend-invests-in-an-insanely-expensive-fund-and-why-i-dont#comment-38144 Ramit, Is there a way to make sure that the money you invest in the mutual funds don't go to certain companies ? For example, I don't want to invest in any oil/gas companies. My financial consultant suggested that I use the China or BRIC funds. I am very new to investing with risk, I have only been using CDs so far. But I am not sure that by investing in the above mentioned funds will ensure that my money gets invested in "clean" companies. I would appreciate any advice you can offer. Ramit, Is there a way to make sure that the money you invest in the mutual funds don’t go to certain companies ? For example, I don’t want to invest in any oil/gas companies. My financial consultant suggested that I use the China or BRIC funds. I am very new to investing with risk, I have only been using CDs so far. But I am not sure that by investing in the above mentioned funds will ensure that my money gets invested in “clean” companies. I would appreciate any advice you can offer.

]]> By: John http://www.iwillteachyoutoberich.com/blog/why-my-friend-invests-in-an-insanely-expensive-fund-and-why-i-dont/comment-page-1/#comment-36366 John Tue, 09 Oct 2007 15:18:21 +0000 http://www.iwillteachyoutoberich.com/blog/why-my-friend-invests-in-an-insanely-expensive-fund-and-why-i-dont#comment-36366 I want to make one point on the fees of mutual funds. The returns you see as an investor already have the fee taken out. So if the performance is beating the index or its peers, then the fee was worth it. I see other contributors saying they will only use Vanguard...or insert fund company here. This is as bad as using a proprietary fund as your friend did. Fees are important, but no fund company does everything well. It is muchwiser to find the one or two funds that each company does well and include those in your possbile investment universe. I pick mutua funds for a living ( I am not an advisor...so not selling anything.) Remember, index funds almost guarantee you to underperform...index returns minus fees. And be wary of index funds like Vanguard who do not replaicate the index, but sample the index to try re-create the benchmark with fewer holdings. Fees can be worth it, if the fund is outperforming. Just don't assume that because it has a low fee structure, that that is the way to go. Vanguard fires just as many bad managers as the more expensive fund companies. I want to make one point on the fees of mutual funds. The returns you see as an investor already have the fee taken out. So if the performance is beating the index or its peers, then the fee was worth it. I see other contributors saying they will only use Vanguard…or insert fund company here. This is as bad as using a proprietary fund as your friend did. Fees are important, but no fund company does everything well. It is muchwiser to find the one or two funds that each company does well and include those in your possbile investment universe. I pick mutua funds for a living ( I am not an advisor…so not selling anything.)
Remember, index funds almost guarantee you to underperform…index returns minus fees. And be wary of index funds like Vanguard who do not replaicate the index, but sample the index to try re-create the benchmark with fewer holdings.

Fees can be worth it, if the fund is outperforming. Just don’t assume that because it has a low fee structure, that that is the way to go. Vanguard fires just as many bad managers as the more expensive fund companies.

]]> By: finance girl http://www.iwillteachyoutoberich.com/blog/why-my-friend-invests-in-an-insanely-expensive-fund-and-why-i-dont/comment-page-1/#comment-34172 finance girl Tue, 25 Sep 2007 16:36:48 +0000 http://www.iwillteachyoutoberich.com/blog/why-my-friend-invests-in-an-insanely-expensive-fund-and-why-i-dont#comment-34172 Steve, don't lose sight of something you cannot quantify: the ineffectiveness of fund managers to outperform, year after year, the index their fund is benchmarked to by more than the delta of ER between their fund and an index fund of that index. You may not have seen this play out in the early '00s, but unfortunately I had to learn the hard way that fund managers look like genuises in a bull market, but once it switches to bear their luck runs out and guess who's left holding the bill? You are, in the form of lower (or wiped out) returns and still paying that expense ratio. There are precious few exceptions to this rule. Steve, don’t lose sight of something you cannot quantify: the ineffectiveness of fund managers to outperform, year after year, the index their fund is benchmarked to by more than the delta of ER between their fund and an index fund of that index.

You may not have seen this play out in the early ’00s, but unfortunately I had to learn the hard way that fund managers look like genuises in a bull market, but once it switches to bear their luck runs out and guess who’s left holding the bill?

You are, in the form of lower (or wiped out) returns and still paying that expense ratio.

There are precious few exceptions to this rule.

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