(1) We preach buy and hold because we don't have an answer for a bear market
The mutual fund industry preaches that you always buy and hold and ride out the bad markets. I guess that makes sense when it is the only option. The mutual fund industry has a Plan A when things are going great. Unfortunately, there is no Plan B. They should probably change that strategy to buy and “hope.
(2) We are always positive because we don't have an answer for a bear market
Have you ever heard a mutual fund growth manager say anything negative about the stock market? Imagine a mutual fund manager saying that “he foresees a bear market and everyone should get out of his fund.”
(3) We compare our funds against Lipper averages because the benchmark is so slow
The Lipper average is the average performance for mutual funds. Lipper will take the performance of all mutual funds of the various categories and give the average return of that category. That includes the funds that bombed as well as the funds that excelled. Mutual fund companies will taut that all of their funds beat their Lipper averages. Average is not a very high benchmark. Said another way, all of their funds are all above average.
(4) We still pay your advisor from the expenses that we charge you
Even though most advisors earn an upfront commission, they still receive what is referred to as an ongoing “trailer” as long as you own the mutual fund. It is called a 12b-1 fee. Although a small amount, the advisor is still getting paid from the expenses you are paying through your fund. That should be ok if your advisor is doing something for you. If not, they are paying your advisor for doing nothing…at your expense.
(5) We place a lot of credibility on Morningstar 5 star ratings…even though they are usually the kiss of death for a mutual fund
Morningstar, the authority on mutual funds, has a 5 star rating system. The great funds are rated 5 stars while the dogs are rated 1 star. A 5 star rating is often referred to as the kiss of death because a mutual fund doesn’t stay 5 star forever. They are basing that on past performance. Past performance is not necessarily indicative of the future. Fund managers go through good and bad cycles like everything else. Thus if you invest in a fund because it is a 5 star fund, you might be investing in a fund whose good days are in the rearview mirror.
