April 2012
Beginner
348 pages
10h 50m
English
APPENDIX D1
I Hate Funds
From my August 20, 2001, Forbes column.
This issue, the mutual fund guide, is a great one in which to tell you this: I hate funds. So should most of you. The average Forbes subscriber (net worth at last count, $2.1 million) is too wealthy for funds. Funds were never meant for you. They were meant for folks with a small pool of money in search of diversification. But at a price. A big one.
For years, I’ve urged a global approach. I won’t retread that now (see, for example, my Nov. 27, 2000, column). But foreign and global funds are expensive.
The average global no-load fund has a 1.8% annual expense ratio—for portfolio management and overhead costs. On top of that are the soft-dollar fees, which are trading commissions, over and above competitive rates, funneled to brokerages for research help they give the fund. Average soft-dollar cost to fund customers: 0.3% of assets annually. It’s a fee that rips you off but is legal. The fund should pay for research from its own revenue.
Then people go haywire and hire a person or service to tell them what funds to own, because there are so many and sorting through them is confusing. The normal fee here is 1% annually. Add these three fees and you could be spending 3% a year to own a global stock portfolio. At that you need real genius to come out ahead. If stocks do 10% in the long term, and if inflation averages 3%, your real return is 7%. A 3% annual fee eats up almost half of that. You wind up with bondlike returns ...
