Mutual Fund ROI (It's not what you think)
No one wants a transparent money manager, in the sense of not adding value. ETFs and Indexes are available to match performance with market averages. No, we want returns above and beyond those.
Funds should have incremental (relative) returns that exceed fund incremental costs, significantly. Otherwise, why would we pay so much for funds?
We could compile a list of all funds and their true diversification scores. We could also measure the true Return on Investment (ROI) of each fund's incremental returns. This is not unlike calculating the ratios for publicly traded companies, to assess the performance of one versus another, in making investment decisions.
One might say "my fund's ROI was 20%, because I put in $10K and it grew to $12K". Let's assume the market returned 10%. Your $12K is in comparison to $11K, so your relative return is $1K or 10%. If you cash out you'll be paying a redemption fee. You probably paid a sales commission up front and there were probably 12b-1 fees or other fees you forgot to mention. In the end you might have earned an 8% differential as compared to 'the market'. Not bad - but let's get real, that was back in the late 1990's, right?
You also have unpredictable capital gain distributions so your tax rate has to be considered. Get the idea? A fund's ROI is based on it's managerial efficiency, market returns, inflation and tax rates.
After suffering (surviving?) the Global Financial Crisis of 2008 (and 2009?) the time has come for the fund frauds of the world to step aside, for money managers to step up their fiduciary duties, for fund institutions to deliver on their promises, and also, for investors to become more savvy and versed on what exactly is happening with their money.
Happy investing!
Funds should have incremental (relative) returns that exceed fund incremental costs, significantly. Otherwise, why would we pay so much for funds?
We could compile a list of all funds and their true diversification scores. We could also measure the true Return on Investment (ROI) of each fund's incremental returns. This is not unlike calculating the ratios for publicly traded companies, to assess the performance of one versus another, in making investment decisions.
One might say "my fund's ROI was 20%, because I put in $10K and it grew to $12K". Let's assume the market returned 10%. Your $12K is in comparison to $11K, so your relative return is $1K or 10%. If you cash out you'll be paying a redemption fee. You probably paid a sales commission up front and there were probably 12b-1 fees or other fees you forgot to mention. In the end you might have earned an 8% differential as compared to 'the market'. Not bad - but let's get real, that was back in the late 1990's, right?
You also have unpredictable capital gain distributions so your tax rate has to be considered. Get the idea? A fund's ROI is based on it's managerial efficiency, market returns, inflation and tax rates.
After suffering (surviving?) the Global Financial Crisis of 2008 (and 2009?) the time has come for the fund frauds of the world to step aside, for money managers to step up their fiduciary duties, for fund institutions to deliver on their promises, and also, for investors to become more savvy and versed on what exactly is happening with their money.
Happy investing!
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