The Hidden Costs of Mutual Funds There’s more to the cost of a fund than its “expense ratio”. Much more. The expense ratio, which most people are familiar with, is a number expressed as a percentage, easily found on any financial website or prospectus. This number represents the explicit cost of a fund, which is 0.63% for the average stock mutual fund. What’s missing in this calculation are the hidden costs, all of which typically add up to more than the expense ratio, and none of which are listed anywhere. Here’s a quick explanation of each… Bid/ask spreads: Look up …
A Bear Market Is Coming! Here’s the Game Plan
Let’s define it. A bear market is a drop in the market of at least twenty percent from its highs, lasting at least two months. Think 2008. In fact, there have been 32 bear markets since 1900, or one every 3.5 years, on average1. So, when’s the next one? Definitely, without a doubt, sometime in the future. We guarantee it. Of course, we are being facetious. If you are reading this, you are either a client, or an acquaintance who has read a few of our posts. Either way, you know that bear markets, bull markets, and everything in …
Things That Make You Go “Hmmm”
Let’s take a comparative look at the world’s market cap (i.e. the value of all the stocks), by country. The total value at the end of last year was about $47 trillion. Is China really only 3% of that? Not quite. That’s just the value accessible to non-Chinese investors. Russia, the largest country by area, barely makes it on the map (hint: it’s grey). In fact, Russia’s total value is less than Apple’s. Try to guess what the non-labeled countries are. We hope this made you go “hmmm”. Cheers, John & Bill
Picking Funds Based on Returns? Think Again
Many, if not most, people pick their investments based on recent returns. And that’s a huge mistake. Consider this data: On March 31st, 2012, there were 2346 domestic mutual funds. One year later, 1173 funds (half) had placed in the bottom 50% of performance, leaving the other 1173 as “winners”. If past performance is indeed indicative of future results, we would expect those 1173 “winners” to continue winning. They don’t – not by a long shot. By March of this year, only 43, or 3.7%, continued winning. For those 43 funds, while a five year streak of staying in the …