We Invest In Our Own Funds
Print This PageDO AS I SAY, NOT AS I DO
The allure of market returns aren’t there for the insider, they are there for us. It's challenging to filter the noise. We are continually sold and influenced by those who “don’t eat their own cooking.” The financial world has transformed itself from “adding value” to “extracting value” from its customers. And somehow, everyone has become “ok” with it. It’s the herd mentality at its worst.
The “financial entertainers” of the world's media are touting the same old “buy and HOPE” strategy. One of these talking heads consistently discusses the mythical growth mutual fund, which she says should average 12% over the long haul. Show me one mutual fund that has averaged 12% over a 20 year segment. To top it off, when explaining how most of her $32 million net worth is invested in zero coupon bonds, this particular financial entertainer told the New York Times “I have a million dollars in the stock market, because if I lose a million, I personally don’t care.”
In searching for a top performing fund manager, we often look to rating websites or glossy brochures to discover the fund’s performance numbers. But John Bogle, founder of Vanguard, cautions us: “Surprise, the returns reported by mutual funds aren’t actually earned by the investors.” Come again… ? That’s right, we don’t actually get to see the true net returns to the investor after you subtract the expense ratio, the transaction costs, the tax drag and the other undisclosed costs. Is this a modern day version of “The Emperor with no Clothes?” (Click HERE to see the hidden costs of a mutual fund)
In a sobering 2009 study released by Morningstar, in tracking over 4,300 mutual funds, it was found that 51% of the managers owned no shares in the fund they manage. That’s right. The chef doesn’t eat his own cooking. Of the remaining 49% or 2,126 managers, most own a "token" amount of their funds when compared to their compensation and net worth:
- 2,126 managers own no shares in their own fund
- 159 Managers had invested between $1 and $10,000 in their own fund
- 393 managers invested between $10,001 and $50,000
- 285 managers invested between $50,001 and $100,000
- 679 managers invested between $100,001 and $500,000
- 197 managers invested between $500,001 and $999,999
- 413 managers invested more than $1 Million
In March of 2008, just months before the market landslide, the “Economist” wrote the following “Imagine a business in which other people hand you their money to look after and pay you handsomely to do so. Even better, your fees go up every year, even if you are hopeless at your job. It sounds perfect. That business exists. Its called (mutual) fund management.”
Ben Bernanke, chairman of the Federal Reserve and the man more familiar with risk than anyone, doesn’t seem to like to gamble with his own money. According to a 2009 financial disclosure, his two biggest assets were annuities. No individuals stocks or corporate bonds in his portfolio (source: USA Today). And if you work for the Federal Reserve, your retirement assets were far more protected that the average American who has 77% exposure to stocks in their 401(k) (source: investment company institute fact book). As of the first quarter of 2009, employees of the Federal Reserve overwhelmingly chose safety and guarantees for their retirement savings. Over 75% of their plan assets were invested in the “Interest Income Fund.” 87% of this fund is comprised of fixed guaranteed annuities with major life insurers (source: Federal Reserve).
