Recently I hosted a two day financial event. I asked how many people owned at least one mutual fund or had a financial advisor that recommended their investments. Over 80 percent of the hands went up.
I then went on to explain why money that is managed or in a mutual fund consistently underperforms the market indexes. One gentleman challenged my presentation which I respect but with great care I told him he was being misled by his financial advisor. I also promised both him and the audience I would write a more comprehensive update on my blog (www.mikelathigee.com) showing proof of how people who have their monies managed by a professional underperform the markets.
This time my response requires specific references which I am glad to provide. According to the Standard & Poors year end 2014 SPIVA Scorecard which measures the S&P index vs active funds only 23% of actively management US funds outperformed the S&P Composite 1500. That means that you as an investor could have simply bought the S&P Index and incurred no additional fees and would have outperformed 77% of professional money managers.
With large cap stocks the numbers were even worse. 86% of large cap fund managers underperformed the S&P 500 Index. For midcaps the underperformance was 66% and for small caps the underperformance was 73%. However, these results are not limited to just 2014. Over the last 10 years the results are even more dismal. 82% of large cap funds, 90% of midcap funds and 88% of small cap funds money managers underperformed their benchmark indexes.
On top of that these numbers only represent pretax returns. The post tax relative performance was worse for investors who held actively managed funds in taxable accounts.
For money managers picking international stocks the numbers were also bad. In the past decade, 84% of international stock funds, 58% of international small cap stocks funds and 90% of emerging market stock funds underperformed their benchmark indexes.
Money managers underperform because of the large fees they charge. Even Warren Buffett states money managers are overpaid sharks. His sidekick Charlie Munger put it more accurately when he said, “The finance industry is 5% rational people and 95% shamans and faith healers.” I believe active funds will continue to underperform due to the extra costs of active management.
It sickens me that as an example a money manager can be managing 10 billion dollars and with a .5 percentage fee (well below average) can still receive $50 million dollars even if his results are dismal. There is something wrong with our system but those who live in the Hamptons laugh at all the suckers all the way to the bank!
I want to slap you across the face to wake up. Especially those who have a 401(K). What a joke!!! These plans are overrun with actively managed stocks and bond funds with very little index funds.
So here is my guidance to you:
- Avoid financial advisors who speculate with clients’ money by promoting actively managed mutual funds. It makes them rich and you poor! Better yet FIRE YOUR FINANCIAL ADVISOR and become more empowered by attending Las Vegas Investment Club Meetings. We teach members how to do it themsevles without the need of a financial advisor.
Finally, I want to thank all of those who attended the Econosummit May 2 and 3. The feedback was overwhelmingly positive and these events going forward are private member events for PAID only members of the Las Vegas Investment Club only.
The club holds 4 general meetings per year open to the public with a keynote educational speaker. The club holds 8 additional meetings per year for PAID members only and the paid membership includes two tickets to the next Econosummit.
The next Private club meeting is Wednesday June 16th at 6:59pm at Salon A at the Orleans Hotel and Casino. This is a paid member event only and if you wish to attend please open the link below.
Las Vegas Investment Club Private Member Meeting
- Building a personal financial plan.
- Specific strategies club members can use in this economic environment to make money in their portfolio.
To attend the meeting you must be a member: