Mutual funds suck ass

I'm an artist from what one could call a "non-investment-minded family," all of which translates into the fact that I've spent the overwhelming majority of my life knowing as much as what I learned in 1983 watching Trading Places: buy low, sell high, and that for some reason trading in future commodities of frozen orange juice can cause even the wealthiest billionaires to go bankrupt overnight.

Anyway, I've been one of the few artists who has actually been able to make a living doing this thing, and have even built up a nice pile of reserves besides. Time to invest that bitch! I go to my bank where a super friendly financial adviser gave me two hours, answered all of my genius questions and at the end of the meeting set me up with two mutual funds by moving my money out of Schwabb and into JPMorgan, which invests only in mutual funds created by...JPMorgan. Now the best thing about mutual funds is that unlike individual equities and ETF's, highly trained professional are in charge, trading in only the best mix of bonds and equities rather than relying on the market where anything awful can happen. Obviously I'm in good hands. Future financial independence here I come!

Even though I know that investments in retirement funds is a long game and that one shouldn't watch the daily ups and downs of the DOWJ, I had to watch it in action anyway just to familiarize myself with the process. Now as some of you may have heard the stock market has been through some ups and downs of late, and so I watched my mutual funds go way, way down in value. Hey, that's cool: buy low, sell high! I buy thousands of dollars of more funds and pat myself on the back for getting in while the market was at a low. Sure, when you go to the info page on those funds you see on Google some gibberish about "loads" and "expense ratios," but who has time for meaningless bibblebabble? The good folks at JPMorgan ("JM" I call them, cause we're tight) have my back.

Of course, my wife has to ruin everything. "Um...honey?" She says. "Can you watch this Frontline episode on mutual funds?"

"Why yes, wife," I reply. "I shall watch your video." You can watch it here if you're curious. Basically, the video's central message is that mutual funds are screwing their customers out of up to 2% of their annual funds per year regardless of the returns, and this can add up to well over $60,000 in lost earnings by retirement. This is that "expense ratio" thing I mentioned earlier. Also, there are a lot of other expenses not even included in the expense ratios. The video further goes on to show that Exchange Traded Funds have almost zero expenses, so compared to my managed fund with 1.25% expenses and hidden fees, an ETF that objectively outperforms that fund will have around .04% fees. Well hell. Probably most alarming however is a JPMorgan investment expert sweating profusely and wringing his hands on camera after the interviewer asks him why, in simple language, an investor should opt for a managed fund instead of an ETF. Add to the sweating and hand wringing a stuttering word salad in response. Uh oh. The video adds that "Financial Adviser" is essentially a meaningless label and that none of these people are fiduciaries for their investors. In other words they're nothing more than salesmen for the trading companies they represent.

I go back to my managed funds and see that "load" label, go to investopedia.com and look it up. Crap. I have that Kaizer Soze moment where the pieces click together at once. If I had been drinking coffee, you can bet that in the next second that cup would have fallen to the ground in slow motion while all the facts were assembled in my head: Why my financial adviser was so friendly to me and gave me so much of his time. Why my money was moved into an account that I couldn't easily and intuitively control. Why my mutual funds earned so little even taking the volatile markets into account. It was precisely the Wolf of Wallstreet phenomenon. If you've been living under a rock for the last two years and haven't seen that movie, it recounts how an investor becomes obscenely wealthy not by knowing the markets and which equities to trade in, but purely by milking his investors with endless commissions and fees. I saw that movie twice and I still fell for it.

Exchange traded funds have rock-bottom expense fees, no front or back loads and can be traded easily like stocks, and unlike managed funds there are no prohibitive fees for pulling out. Except for the capital gains tax, you're not getting out of that one without some highly creative engineering. And of course ETF's outperform managed funds almost every single time. And Warren Buffet's suggested retirement investments? All ETF's. Managed funds exist for one reason and one reason alone: to **** you.

Do not buy mutual funds.

This message was brought to you by someone who only started educating himself in these matters just this year, and lost thousands in the process through front load fees. If you're still invested in mutual funds I'd strongly suggest researching this further yourself.

Well. Firstly, I wouldn't recommend going with JP Morgan, or any of the big banks, really. You don't need one of them to invest. But if I get some spare time I'll bone up on ETF's and come back to you. I've used mutual funds, and I've used them well enough. The only time I went into individual stocks for myself I made out like a bandit, for which the government duly ****ed me over.


It sounds, however, very much like you got the pitch for one side, then got the pitch for the other side, and didn't differentiate that they were both pitches. Just my intro-un-researched opinion.

cpwill said:

Well. Firstly, I wouldn't recommend going with JP Morgan, or any of the big banks, really. You don't need one of them to invest. But if I get some spare time I'll bone up on ETF's and come back to you. I've used mutual funds, and I've used them well enough. The only time I went into individual stocks for myself I made out like a bandit, for which the government duly ****ed me over.


It sounds, however, very much like you got the pitch for one side, then got the pitch for the other side, and didn't differentiate that they were both pitches. Just my intro-un-researched opinion.

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I was instantly aware that the Frontline episode came off as a paid advertisement. However, there are two things that contradict this idea: 1)everything it said panned out in independent research. I've researched nearly a hundred ETF's since I watched that episode and so far even the worst ETF has outperformed my mutual funds (yes, I'm certain there are mutual funds that are objectively fantastic). 2)The video only focused on the expense ratios and hidden fees and didn't focus one bit on the front and back loads. Personally, if my agenda were to sell ETF's and crap on managed funds, you can bet that the load fees would account for at least half of the episode.

Capital gains will hit you no matter what you go with, except for IRA's of course.

There is nothing inherently wrong about mutual funds, what is wrong is not doing the necessary research on them before jumping in.

Cardinal said:

I was instantly aware that the Frontline episode came off as a paid advertisement. However, there are two things that contradict that idea: 1)everything it said panned out in independent research. I've researched nearly a hundred ETF's since I watched that episode and so far even the worst ETF has outperformed my mutual funds (yes, I'm certain there are mutual funds that are objectively fantastic). 2)The video only focused on the expense ratios and hidden feed and didn't focus one bit on the front and back loads. Personally, if my agenda were to sell ETF's and crap on managed funds, you can bet that the load fees would account for at least half of the episode.

Capital gains will hit you no matter what you go with, except for IRA's of course.

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Well, that's where the large majority of my investment is, aside from my kids college funds.

But the stocks I bought were individual that I bought through USAA brokerage. I made a little over a 100% return on one and about an 80% return on the other. What cost me wasn't capital gains so much (though those were taken out), it was the discover that, if you make more than $3500 in capital gains, your EITC suddenly goes away. I ended up getting "taxed" at an effective rate of something like 103% on my capital gains.

I was unemployed at the time, and it pissed me off no end. :lol:

OrphanSlug said:

There is nothing inherently wrong about mutual funds, what is wrong is not doing the necessary research on them before jumping in.

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What a trollish, worthless post that was. From your posting history I would have expected better from you.

cpwill said:

Well, that's where the large majority of my investment is, aside from my kids college funds.

But the stocks I bought were individual that I bought through USAA brokerage. I made a little over a 100% return on one and about an 80% return on the other. What cost me wasn't capital gains so much (though those were taken out), it was the discover that, if you make more than $3500 in capital gains, your EITC suddenly goes away. I ended up getting "taxed" at an effective rate of something like 103% on my capital gains.

I was unemployed at the time, and it pissed me off no end. :lol:

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Yikes. That's another one for me to research.

Keeping in mind that IRA's can use individual equities, bonds, mutual funds or ETF's....

OrphanSlug said:

There is nothing inherently wrong about mutual funds, what is wrong is not doing the necessary research on them before jumping in.

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There you go!!! This thread is like someone complaining because they went to one used car dealer and took the salesman word on everything related to buying a used car. Education comes with a steep price, when you don't do your homework...

Cardinal said:

What a trollish, worthless post that was. From your posting history I would have expected better from you.

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It is not trollish, it is dead on accurate. Sounds to me like you got burned by not understanding the terms of what you got into. That is not on all mutual funds "suck ass," that is on you for not researching the mutual funds you got into.

There is nothing inherently wrong with the idea of pooling resources from individuals into a fund, to then hold assets under professional management at a cost. This is effectively the backbone of bringing in everyone else to the investment game usually enjoyed only by wealth.

Mutual Funds (and all the different types of them,) ETFs, Pension Plans, IRAs, 401Ks, whatever else... they all have rules, and they all have costs. Generally speaking it is illegal to hide the costs, they just may be clever in how those costs are shown. Besides the fact that we are talking about investments, which inherently have valuation risk. You add that to fees and you *have* to be informed.

Do the damn research and go into the whole thing prepared. Bottom line...

OrphanSlug said:

It is not trollish,

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It was trollish. Your sole motive here is to aggrandize yourself while adding nothing of any value to the subject. "Educate yourself." Wow, thanks genius.

My opinion of you has really dropped.

Cardinal said:

This message was brought to you by someone who only started educating himself in these matters just this year, and lost thousands in the process through front load fees. If you're still invested in mutual funds I'd strongly suggest researching this further yourself.

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Vanguard

American said:

Vanguard

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Yes, this as well as SPY are the darlings of exchange traded funds, and for good reason, their performance and liquidity are amazing. My only problem is the individual shares are so high that I simply can't afford enough of them to really profit from that investment. There are ETF's whose performances are still extremely good at a quarter of the share price while still having strong liquidity.

Cardinal said:

It was trollish. Your sole motive here is to aggrandize yourself while adding nothing of any value to the subject. "Educate yourself." Wow, thanks genius.

My opinion of you has really dropped.

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Take it out on me all you want, at the end of the day you did not understand the terms of what you got into. That is no one else's fault but your own, then turn around and open up a thread that "mutual funds suck ass" because you did not like the results.

You basically trying to down the entire mechanism of getting people into investments, and it is absurd. There is always a way to evaluate costs of these funds as well as their prior performance, you did not do that.

OrphanSlug said:

Take it out on me all you want, at the end of the day you did not understand the terms of what you got into. That is no one else's fault but your own, then turn around and open up a thread that "mutual funds suck ass" because you did not like the results.

You basically trying to down the entire mechanism of getting people into investments, and it is absurd. There is always a way to evaluate costs of these funds as well as their prior performance, you did not do that.

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Take a break from your trolling for one post and explain using straightforward language why ETF's are not objectively better than mutual funds. If you can't do that, then at least show how with their sky high fees they're at least the equal of ETF's. So far all I'm seeing from you is a giant helping of trolling, self aggrandizement and nothing else.

Cardinal said:

Take a break from your trolling for one post and explain using straightforward language why ETF's are not objectively better than mutual funds. If you can't do that, then at least show how with their sky high fees they're at least the equal of ETF's. So far all I'm seeing from you is a giant helping of trolling, self aggrandizement and nothing else.

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Forget the trolling ****, no one is buying it.

But just to help you there are conditions where ETFs do make much better sense than Mutual Funds, for instance time and/or market condition. If you are making more trades in a shorter time frame then ETFs make sense. The fees are straight forward and the trade can usually be made while the markets are open. But there are also conditions where Mutual Funds have more direct management, better application of what is a taxable event, as well as historically tracked predictability. If you are buying and holding for a longer term it makes more sense for Mutual Funds to be in the portfolio having someone else worry about active management.

If you are going to take a more active role in your investments day to day then a portfolio that have more ETFs again makes sense, for the same reasons. If you are not taking such an active role in your investments looking over the longer term to retirement then ETFs do not make as much sense, but Mutual Funds in your portfolio does. The fees you would have with Mutual Funds can be digested over the longer term, and the taxable events are more easily handled with Mutual Funds. And despite popular belief, ETFs are not free of brokerage commissions. And despite popular belief, not all Mutual Funds have the same fee structure. Some are rather inexpensive, very straight forward in those costs, and outperform the S&P on a consistent basis. It goes beyond the organization doing the management, but also the target of the Mutual Fund in the first place. Large Cap, Bond (debt) based, "emerging market" based, etc. ETFs on the other hand are index based. Yes, you can use certain ETFs to ride market volatility in a way that Mutual Funds this is more problematic at handling, as the actual trade for the Mutual Fund is generally controlled.

It all comes down to strategy and time, and it is foolish to offer an investment conversation where ETFs and Mutual Funds are inherently adversarial. Pick one or the other is foolish. A smarter more diversified investor will have both in their portfolio based on time and intention. Not because a mutual fund cost them more than expected so they rushed off to index funds in protest expecting a better result. Not all mutual funds are the same, and neither are all ETFs.

OrphanSlug said:

Take it out on me all you want, at the end of the day you did not understand the terms of what you got into. That is no one else's fault but your own, then turn around and open up a thread that "mutual funds suck ass" because you did not like the results.

You basically trying to down the entire mechanism of getting people into investments, and it is absurd. There is always a way to evaluate costs of these funds as well as their prior performance, you did not do that.

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I gotta admit, while I do not fault you for spreading the word, I'm generally with the Slug on this one.

The usual advice for the uninformed investor is pretty straight-forward: Buy a low-fee no-load mutual fund, preferably an index fund. That's very common advice.

Investment vehicles usually tell you, right in the prospectus, how much they're charging you, along with past performance.

E.g. here's two Vanguard funds. The first has an expense ratio of 0.26% and an annual growth of 7.06% over 10 years. The second has an expense ratio of 0.12% and 7.19% growth.

https://personal.vanguard.com/us/funds/snapshot?FundId=0123&FundIntExt=INT
https://personal.vanguard.com/us/funds/snapshot?FundId=5123&FundIntExt=INT

You can also do things like schedule monthly purchases, another good investment strategy.

Thus, you don't need to avoid ALL mutual funds like the plague. Just avoid the high-cost load funds.

Visbek said:

I gotta admit, while I do not fault you for spreading the word, I'm generally with the Slug on this one.

The usual advice for the uninformed investor is pretty straight-forward: Buy a low-fee no-load mutual fund, preferably an index fund. That's very common advice.

Investment vehicles usually tell your, right in the prospectus, how much they're charging you (it's the "expense ratio"), along with past performance.

E.g. here's two Vanguard funds. The first has an expense ratio of 0.26% and an annual growth of 7.06% over 10 years. The second has an expense ratio of 0.12% and 7.19% growth.

https://personal.vanguard.com/us/funds/snapshot?FundId=0123&FundIntExt=INT
https://personal.vanguard.com/us/funds/snapshot?FundId=5123&FundIntExt=INT

You can also do things like schedule monthly purchases, another good investment strategy.

Thus, you don't need to avoid ALL mutual funds like the plague. Just avoid the high-cost load funds.

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And there are a series of Mutual Funds, especially Bond based funds, that are smoking the markets right noe. Like the Fidelity Capital and Income Fund (no load) that is up this year 4.2% with less than 0.5% cost year on year. This year in this sector the Fund is #2, over the last 10 years this Fund is #1.

OrphanSlug said:

Forget the trolling ****, no one is buying it.

But just to help you there are conditions where ETFs do make much better sense than Mutual Funds, for instance time and/or market condition. If you are making more trades in a shorter time frame then ETFs make sense. The fees are straight forward and the trade can usually be made while the markets are open. But there are also conditions where Mutual Funds have more direct management, better application of what is a taxable event, as well as historically tracked predictability. If you are buying and holding for a longer term it makes more sense for Mutual Funds to be in the portfolio having someone else worry about active management.

If you are going to take a more active role in your investments day to day then a portfolio that have more ETFs again makes sense, for the same reasons. If you are not taking such an active role in your investments looking over the longer term to retirement then ETFs do not make as much sense, but Mutual Funds in your portfolio does. The fees you would have with Mutual Funds can be digested over the longer term, and the taxable events are more easily handled with Mutual Funds. And despite popular belief, ETFs are not free of brokerage commissions. And despite popular belief, not all Mutual Funds have the same fee structure. Some are rather inexpensive, very straight forward in those costs, and outperform the S&P on a consistent basis. It goes beyond the organization doing the management, but also the target of the Mutual Fund in the first place. Large Cap, Bond (debt) based, "emerging market" based, etc. ETFs on the other hand are index based. Yes, you can use certain ETFs to ride market volatility in a way that Mutual Funds this is more problematic at handling, as the actual trade for the Mutual Fund is generally controlled.

It all comes down to strategy and time, and it is foolish to offer an investment conversation where ETFs and Mutual Funds are inherently adversarial. Pick one or the other is foolish. A smarter more diversified investor will have both in their portfolio based on time and intention. Not because a mutual fund cost them more than expected so they rushed off to index funds in protest expecting a better result. Not all mutual funds are the same, and neither are all ETFs.

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And if you had started out like this instead of entering the thread acting like a complete dickhead I would have appreciated your presence here.

Cardinal said:

And if you had started out like this instead of entering the thread acting like a complete dickhead I would have appreciated your presence here.

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Be offended by my comments, I cannot control that. And I've been called far worse to be offended myself from your comments, it frankly just does not matter that much to me.

But I am going to call out, and stand by, my comments when someone suggests something like you have here. Because you have been arguably burned by a Mutual Fund or a manager, you determined all "Mutual funds suck ass" and further offered the asinine suggestion in your OP to "Do not buy mutual funds." Depending upon conditions Mutual Funds may not be the wise option as I've said, and similar it would be foolish to suggest everyone look to ETFs because of your experience with Mutual Funds. The conclusion you came do is highly argumentative and problematic, worse the offered advice at the end of your OP comments is nothing short of dangerous.

The individual investor, who by majority are not wealthy by any measure in this nation, have only a handful of options to make money in a disposition that beats the cost of inflation working against what little they have at every step. Not everyone has the time or means to monitor their investments with the regularity that most EFTs require, which is the same thing as saying not everyone has the time or means to invest and monitor outright their own holdings that ETFs and Mutual Funds get into by pooling money from many individuals. Moreover, we as a nation are terribly behind in thinking when it comes to money earned over our work life to be utilized during our retirement years for whatever reason. Comfort, living style, healthcare, whatever. Mutual Funds are one of those tools people should consider to their long term benefit, but like anything involving money it needs to be researched and checked with some degree of frequency.

When it comes to any investment of any flavor no matter what the time frame or investment goal you have to be diligent enough to understand the terms, costs, and risks. I cannot say that strong enough or frequently enough.

I'm certainly not an investment expert, but my personal opinion is that I don't believe that it's possible to beat the index averages, without having insider information, managing control of multiple companies, or power to manipulate the market. I'm also not thrilled about purchasing any investment where someone gets a cut of my investment, I figure that 100% of my luck is better than 98% of their luck.

I believe that most people should just purchase shares in just one company every time they make an investment, and diversify by choosing a different stock every time they invest. Exactly how to chose which stocks to purchase, is totally beyond me. Maybe a dartboard.

Look into Vanguard.

imagep said:

I'm certainly not an investment expert, but my personal opinion is that I don't believe that it's possible to beat the index averages, without having insider information, managing control of multiple companies, or power to manipulate the market. I'm also not thrilled about purchasing any investment where someone gets a cut of my investment, I figure that 100% of my luck is better than 98% of their luck.

I believe that most people should just purchase shares in just one company every time they make an investment, and diversify by choosing a different stock every time they invest. Exactly how to chose which stocks to purchase, is totally beyond me. Maybe a dartboard.

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Taking the time to research companies individually seems to me like taking on a new job. Might as well start growing my own food while I'm at it.

Hard Truth said:

Look into Vanguard.

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Yes, as I told another who suggested that, Vanguard and SPY etf's are pretty amazing. They're also priced at around $170-$200 per share, which really doesn't allow me in on much of the benefit.

Visbek said:

I gotta admit, while I do not fault you for spreading the word, I'm generally with the Slug on this one.

The usual advice for the uninformed investor is pretty straight-forward: Buy a low-fee no-load mutual fund, preferably an index fund. That's very common advice.

Investment vehicles usually tell you, right in the prospectus, how much they're charging you, along with past performance.

E.g. here's two Vanguard funds. The first has an expense ratio of 0.26% and an annual growth of 7.06% over 10 years. The second has an expense ratio of 0.12% and 7.19% growth.

https://personal.vanguard.com/us/funds/snapshot?FundId=0123&FundIntExt=INT
https://personal.vanguard.com/us/funds/snapshot?FundId=5123&FundIntExt=INT

You can also do things like schedule monthly purchases, another good investment strategy.

Thus, you don't need to avoid ALL mutual funds like the plague. Just avoid the high-cost load funds.

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Thanks for this.

There is nothing wrong with mutual funds per say. There are mutual funds - known as index funds - that are equivalent to the ETFs you're talking about - no loads, low expense ratios, etc. For example look at VTSAX and VTI. Vanguard charges the same e/r for its ETFs and their equivalent index admiral shares. In fact those two funds are virtually indistinguishable as far as the average retirement investor is going to be concerned.

What you're actually getting at is the difference between actively managed funds and passively managed funds (like index funds or ETFs), not the difference between mutual funds and exchange traded funds.