Mutual fund expenses may be making you poorer. Investing in actively-managed mutual funds that charge high fees can lower your standard of living in retirement by as much as one-third over a low-cost index fund strategy. This is the conclusion of Nobel Laureate William Sharpe in his latest Financial Analysts Journal article The Arithmetic of Investment Expenses.
I feel for people who are not investment savvy because they pay a dear price for their inexperience. The mutual fund industry and advisers who sell commission-based products take advantage of unsophisticated investors by marketing high-fee, high-commission funds that earn low returns. I wish there were a way to put a little voice in every inexperienced investor’s head that tells them, “Just buy low-cost index funds!” It would go a long way to solving this serious problem.
Wall Street has a new perfect record for inflicting pain on investors with their annual industry sector picks and pans. A strategy that attempts to rotate among industries just doesn’t work. The pros can’t do it and neither will you or your adviser. A better strategy is to hold a strategic allocation to your favorite sectors for the long-term, or better yet, buy all the sectors using a low-cost total market index fund.
We have a lot riding on the markets over the next 10 years. The return from stocks and bonds will determine if 78 million baby boomers accumulate enough money to retire and if Generation X (born between 1965 and 1980) will reach a standard of living enjoyed by previous generations. These answers will be contingent [...]