The Market Data Against Fundamentals
Are you willing to admit that buy and hold only works for people who live forever? However, mutual funds still make a fortune for selling the dream:
| Mutual Funds with Largest Fees | 10-Year Period | $21.40 Billion Total Fees Earned |
|---|---|---|
| Fidelity Magellan | 99-08 | $3.70B |
| Fidelity Contrafund | 98-07 | $3.00B |
| American Century Ultra | 99-08 | $2.30B |
| PIMCO Total Return | 99-08 | $3.00B |
| American Funds Inv Co Amer | 98-07 | $1.54B |
| Fidelity Growth & Income | 99-08 | $1.56B |
| American Funds Growth Fnd Amer | 99-08 | $2.10B |
| Fidelity Low-Priced Stock Fund | 99-08 | $1.66B |
| American Funds Europacific | 98-07 | $1.74B |
| Fidelity Dividend Growth | 99-08 | $0.80B |
$21 billion in fees have been paid to mutual funds for no performance over the last 10 years. Why pay billions to mutual funds for no performance?
| Annualized returns 2000-08 | Large Cap U.S. Stocks | International Stocks | U.S. Bonds |
|---|---|---|---|
| Market Return | -0.27% | 2.29% | 6.06% |
| Loss due to Fund Expenses | -2.04% | -3.47% | -1.39% |
| Loss due to Emotions | -0.94% | -0.51% | -1.33% |
| Total Penalty | -2.98% | -3.98% | -2.72% |
| Average Fund Return | -3.25% | -1.69% | 3.34% |
Consider more sobering statistics:
- The typical American household has net financial assets of $1,000. When Americans were asked to estimate the net financial assets held by the typical household, only 7% correctly answered under $2,500.
- In 2016 we will begin paying more in Social Security benefits than we collect in taxes. Without changes, by 2037 the Social Security Trust Fund will be exhausted.
- At their peak 46% of working Americans were covered by a pension plan. By 2005 it had declined to 17% and it continues to drop annually.
- America's so-called greatest investor, Warren Buffett, had many of his biggest investments bailed out in 2008. If no bailout, his firm Berkshire Hathaway sinks.
- 40% of people with incomes less than $35,000 believe the lottery is the best chance they have to getting $500,000 for retirement.
- There is no more earning interest on cash in your account. The Fed has reduced interest rates to 0.
Abigail Johnson
President of Fidelity Investments
Net worth: $11.5 billion
That's a large net worth for delivering no return. Bottom line, mutual funds are big 'skimming' operations. They skim a little off everyone and before you know it the head of Fidelity is worth $11 billion dollars. Worse yet, consider the Nasdaq 10 years after the Dot-com bubble implosion:
The charts are the truth regardless of what a broker might say. So what's happened in response?
- According to Fidelity Investments, a record number of consumers borrowed from their retirement saving plans in the second quarter of 2010. Sixty two thousand Fidelity Investors made hardship withdrawals from their 401K plans. That's a 10-year high.
- CNBC ratings are down. Have some finally tired of Jim Cramer ranting (really crazy starting at 2:00 minutes).
- There are bull markets in bonds and gold. That's fear; it's not sound investing strategy. It's sheep behavior.
More Data Against Fundamentals
Is there a way out? Yes. The great traders are not buy and hopers or fundamental traders. The great traders have a plan to deal with the unknown. They know how to handle their emotions. They make money when all hell breaks loose (i.e. 2008). The market winners are trend followers who have learned how to ride the bucking bronco up and down for profit.
