Read of the Day: 10 Things Your Mutual Fund Company Won’t Tell You

This is a nice summary of the flaws in many mutual funds.  Too many mutual funds are simply index funds disguised as something else.  And most of the rest are simply attempts to market a product that isn’t designed to actually add value (but sounds fancy enough to accumulate assets).  If you missed John Bogle’s discussion on the flaws in the mutual fund industry you should watch it here.

The 10 things via MarketWatch:

1. “Cheap funds often outperform pricey ones.”

2. “We can’t beat the market.”

3. “When skill fails, we just double (or quintuple) our odds.”

4. “People aren’t buying our product…”

5. “…except when we pay them kickbacks.”

6. “Hedge funds are our idols.”

7. “Our boards are rubber stamps.”

8. “Blame us for runaway CEO pay.”

9. “We played a starring role in the financial crisis.”

10. “Our lobby crushed bipartisan efforts at reform.”

Read the full piece here.  


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Cullen Roche

Mr. Roche is the Founder of Orcam Financial Group, LLC. Orcam is a financial services firm offering research, private advisory, institutional consulting and educational services.

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  • Nils

    I always say if you think you can’t pick the right stocks, what makes you think you can pick the right stock picker?

  • Conventional Wisdumb

    Mauboussin’s essay from last week really nails this concept of skill vs luck which is especially applicable to the US equity mutual funds. I heartily recommend it.

  • bart

    Bogle rules, simple truths and the full picture always win on the long term.

  • barak

    the rise of etfs is the punishment for the mutual fund scenes but it has a main caveat: while mutual funds can retain some money on the sidelines at times, etfs are all in by definition. this tends to exasperate market declines.

  • Dismayed

    Why would ETFs, which are essentially closed-ended mutual funds, exhasperate market declines? They don’t have to sell individula securities into a bear market, after all.

  • barak

    because mutual funds have the discretion of the managers about the proper level of cash while etfs intend to repeat indexes and therefore shouldn’t be expected to have any cash available.