Thursday, February 12, 1998
Confessions of a Fund
Investor
By Eric Desch
([email protected])
Hello my name is Eric, and I'm a mutual fund investor.
It has been one day since I last owned a mutual fund. I am currently in recovery, by the grace of The Motley Fool. I may never again have to deal with mutual fund investing, but I have to deal with my returns every day.
At first it seemed like a good idea. Professional money management, diversification, dollar-cost averaging, no-loads, you know the patter. Before long I was reading reports on mutual funds to decide which ones had the best 10-year returns, which ones had consistent management that was responsible for their spectacular returns, and which ones carried the least risk. My high-priced broker even published quarterly reports comparing the returns and risks of all mutual funds for my perusal. How could I go wrong?
So a friend and I did our research and picked our funds and talked about our future Porsches and vacation homes. It was fun! But, before long, that fun was turning into an expensive monthly habit. Each month we put more money into our funds, unaware of what we were doing to our returns.
Then one day, I happened upon The Motley Fool online. I started reading more and more books on investing. They all urged me to buy an S&P500 index fund instead of my actively managed funds. But I was in denial. Mutual funds promised me the kind of future I wanted; I told myself that I was doing the right thing. "This is a long-term strategy," I told myself, "stick with it." "Mutual funds do better in a bear market," someone told me, and I listened. "If index funds are so great, why doesn't everyone buy them?" Why indeed? But still I read and still I learned.
And finally it sunk in: accountability. I read Robert Sheard's Daily Dow column and learned how to use Excel to calculate my returns using the XIRR macro (internal rate of return). By this time I was supplementing my mutual fund habit with the Foolish 4 and some Cash-King stocks. So I created a spreadsheet to compare the returns of the three investment approaches. As of yesterday, here are my returns for the past year and a half:
Mutual Funds: 8.90%
Foolish 4: 24.44%
Cash-King: 58.97%
Now I could have rationalized that these returns were over too short a time span to be statistically significant (I certainly don't expect the Cash-King portion to keep a 59% pace), but it was clear to me that the mutual funds were performing at more or less their historical level and that the Foolish 4 stocks were performing at more or less their historical level and that this trend was likely to continue. So yesterday I stopped the monthly transfers into my mutual fund account and I sold every last share of every fund I owned. I have better places to put that money.
Hello my name is Eric: and I'm a mutual fund investor.
It has been one day since I last owned a mutual fund. I am currently in recovery, by the grace of The Motley Fool. I may never again have to deal with Mutual Fund Investing, but I have to deal with my returns every day.
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