THE REAL COST OF MUTUAL FUNDS

Transcription

1 THE REAL COST OF MUTUAL FUNDS

2 MUTUAL FUND THOUGHTS The fundamental flaw in most mutual funds, Hebner says, is that even welleducated portfolio managers with huge research budgets can't pick winners consistently enough to beat the market over time. Yes, by the luck of the draw, about a third of mutual funds will beat the indices each year. But last year's winners are often this year's losers. When you look at long-term performance, only a handful of funds beat the indices. And there's no tried-and-true way of picking these funds in advance. Source: Mark Hebner CEO Index Fund Advisors $1.5 Billion Under Mgt

3 Most People and Mutual Funds Do Worse Than Average It is maddeningly difficult to "beat the market." Indeed, most people and most mutual funds actually do worse than the market averages each year, for a very simple reason: the averages are just that theoretical, numerical averages. They pay no brokerage commissions, they pay no fees, they pay no taxes. Source: PersonalFund.Com

4 What Counts Is How Well You Do After Costs... If the stocks in your mutual fund were up 10% some year, that's fine but how much were you up? There are fees. There are transaction costs. And outside a tax-sheltered retirement plan, there are taxes. As you can see from playing with our calculator, in some cases that 10% could be cut to 7% or less! Source: PersonalFund.Com

5 COSTS X 2 THE PUBLISHED COST THE HIDDEN COST

6 The Hidden Costs of Mutual Funds Portfolio managers can rack up steep expenses buying and selling securities, but that burden isn't reflected in a fund's standard expense ratio. Estimates show trading costs for stock funds totaling 2% to 3% of assets annually, though conservative estimates place them closer to 1%. There are other costs, not reported in the expense ratio, related to the buying and selling of securities in the portfolio, and those expenses can make a fund two or three times as costly as advertised. Four main components: brokerage commissions, bid-ask spreads, opportunity costs and market-impact costs. Anna Prior (March, 2010). The Wall Street Journal

7 How costly is a mutual fund to own? Hartford Growth Opportunities (HGOIX) Source: Morningstar, 7/31/15

8 Hartford Growth Opportunities (HGOIX) Investment: $10,000 Source: PersonalFund, August 2015

9 How costly is a mutual fund to own? CGM FOCUS (CGMFX) Source: Morningstar, 7/31/15

10 CGM Focus (CGMFX) Investment: $10,000 Source: PersonalFund, August 2015

11 How costly is a mutual fund to own? Laudus Growth Investors US Large Cap Gr (LGILX) Source: Morningstar, 7/31/15

12 Laudus Growth Investors (LGILX) Investment: $10,000 Source: PersonalFund, August 2015

13 How costly is a mutual fund to own? Lazard Int l Equity Select (LZSIX) Source: Morningstar, 7/31/15

14 Lazard Int l Equity Select (LZSIX) Investment: $10,000 Source: PersonalFund, August 2015

15 How costly is a mutual fund to own? FIDELITY BLUE CHIP GROWTH (FBGRX) Source: Morningstar, 7/31/15

16 Fidelity Blue Chip Growth (FBGRX) Investment: $10,000 Source: PersonalFund, August2015

17 How costly is a mutual fund to own? FIDELITY FOCUSED STOCK FUND (FTQGX) Source: Morningstar, 7/31/15

18 Fidelity Focused Stock Fund (FTQGX) Investment: $10,000 Source: PersonalFund, August 2015

19 BOTTOM LINE COSTS CAN BE DECEIVING --- KNOW THY FUND!

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