Are Your Investments Really Buy and Hold? Or has Your Fund Manager Turned You Into a Short-Term Trader?
Earlier this week, I read something over at The Oblivious Investor that struck me. Mike points this out about managed funds and their impossibly high turnover:
I’m not here to say that it’s impossible to be a successful short-term trader. I am, however, concerned that many fund investors think they’re using a long-term buy & hold strategy, when in reality, all they’re doing is paying somebody to engage in short-term stock picking with their money.
This got me thinking. Mike reports that Morningstar claims that annual turnover for domestic stock funds is, on average, 104%. That means that an average managed fund holds stocks for less than a year. In no universe is this a long-term strategy. However, many folks think that if they invest in a fund and leave their money there, they are engaging in a long-term, buy and hold strategy. They intend to, and they think they are succeeding. Unfortunately, fund managers in these types of funds decide when to buy and when to sell — and you pay the fees.
It is a point worth thinking about. And one that I have considered long and hard since I bought a managed fund years and years ago as a younger woman. I didn’t really think about these things. Now, though, after learning about how managed funds work — not to mention the fees that are charged — I’m an index fund gal. The expenses and turnover are both lower, since you are tracking an index, and there really isn’t a need for a manager.
Disclaimer: I am not an investment professional. Nothing in this piece or on this Web site should be construed as investment advice. Before making investment decisions, do your own research and/or consult with an investment professional. All investment comes with the risk of loss. You are responsible for your own investment decisions and any loss that may result from your decisions.
July 13th, 2009 at 3:38 pm
[…] Lately, I’ve had The Oblivious Investor on my mind, and it really isn’t much of a surprise. Recent concerns with the stock market have many people — people I know and emails from readers — wondering if it is time to abandon the stock market altogether. Mike, The Oblivious Investor, frequently argues that long-term nothing else can beat stocks in terms of actual returns. However, he’s talking about a timeframe of at least 20 years. And recommending index funds, which follow performances of overall indexes rather than relying on stock pickers and fund managers. […]