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For many mutual fund managers, “beating the market” is the absolute goal. Usually, the term “the market” refers to most of the major indexes. Let’s take the S&P 500 as the most common benchmark: if the S&P 500 index is up 10% on the year, your mutual fund manager strives to be up 11%.
If mutual funds were managed by chimpanzees picking stocks randomly out of the S&P 500, roughly half of these funds would beat the market. So, it shouldn’t be that hard right? Wrong. Due to the fees associated with mutual funds, somewhere between 70-85% of all mutual funds do NOT even keep up with the general market!
Not only this, the more well-known and respected a mutual fund gets, the less likely it is to be a profitably investment!
Why?
- The more well-known a stock picker gets, the more expensive his fees get, and the less likely it is that he will be able to compensate for his fees through speculating on stocks
- Picking stocks is much less successful than CNBC would have you believe. A recent study by the University of Maryland’s Russ Wermer’s showed that less than 10% of “star” stock pickers were actually profitable once luck and the market were statistically accounted for.
- That’s less than 10% of the people that were considered “star stock pickers,” not just people over all!
When people hear facts like these, they always want to hide behind a series of excuses not to manage their own money. Most people want to believe that their money is in good hands, but the facts show that it isn’t. No one will be able to invest your money better than yourself.
So, next time you find yourself choosing between a chimpanzee and a money market account manager, say no to both.