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The Indomitable Investor: Why a Few Succeed in the Stock Market When Everyone Else Fails by Steven M. Sears

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Performance Is Relative

These are facts worth knowing, and doing something about: Most mutual funds fail to outperform their performance benchmarks. The funds may track the Standard & Poor’s 500 Index, or some other benchmark, but they rarely achieve returns that are higher than the benchmark index. Yet, mutual funds charge a complex array of fees that investors must pay even if the fund fails to beat the benchmark. Trying to track mutual fund performance is a task worthy of a lawyer. More than 50 percent of all mutual funds are merged with other funds, or closed, within 10 years after they have been launched, according to data from Morningstar, a mutual-fund analysis firm. Those facts are not frequently discussed. Neither is the immense wealth generated by mutual funds for mutual fund companies. The main beneficiaries of mutual funds are mutual fund companies. Overtime, mutual fund fees cripple, if not destroy, investment returns, but they do wonders for the mutual fund company’s stock price. Consider T. Rowe Price Group, a top mutual fund company. From 1990 to late October 2011, T. Rowe Price’s stock dramatically outperformed the Standard & Poor’s 500 Index and the Dow Jones Industrial Average. The stock gained about 4,000 percent, compared to about a 400 percent gain for the Standard & Poor’s 500 and Dow indexes. Shares of Franklin Resources, another leading mutual fund company, similarly outperformed the Standard & Poor’s 500 and Dow indexes. What accounts for their financial ...

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