“If you don’t like the idea that most of the money spent on lottery tickets supports government programs, you should know that most of the earnings from mutual funds support investment advisors’ and mutual fund managers’ retirement.”
Robert Kiyosaki
I began to track the performance of my bank’s mutual funds in 2016.
Since then, this is the yearly return they gave to me: +0.2% per year.
Yes, correct: zero, nix, nada, null !
During the same period, the S&P500 doubled. More or the same happened to the MSCI World.
Am I an unlucky case?
No, I am not. Mutual funds that beat the market average performance over relevant periods of time are rare. Additionally, for funds distributed by banks in particular, it is even more difficult to get better-than-average results:
- bank (and insurance) affiliated funds have high costs: usually they have a 2-3% cost per year, which means that the gross return should overperform the market benchmark by at least 2-3% in order to reach a better-than-average net performance. Do you think that it is easy for a fund manager to do that?
- fund managers are usually judged over quarterly performance, for funds that are often set to have a duration of 5 years. Do you think that is possible to obtain long term results, with this kind of short-term focus?
There are other factors to be taken into consideration, but costs and short term focus are already enough to make you understand why it is really rare to obtain good perfomance from banks and insurances affiliated funds.
What are the best alternatives?
- If you do not want to invest your personal time in investment activity, you may look for independent mutual funds. In this case, you should ask for long term past good performance and ensure that the fund manager has “skin in the game”, that means that has personally invested in the same fund you would buy: just applying these 2 criteria you will discover that most of the available options have to be excluded. Oh, I forgot: check also the manager fee structure and ensure that is mostly performance-based!
- Otherwise, you may follow the advice of Warren Buffett to his wife: “put 10% of the cash in short-term government bonds and 90% in a very low-cost S&P 500 index fund”. Just have a look to past performance – you will be surprised to see how this simple policy beat most of professionals’ results.
- Also, you may rely on an independent financial consultant.
So, in conclusion: is Robert Kiyosaki right when he says that “most of the earnings from mutual funds support investment advisors’ and mutual fund managers’ retirement”?
Probably yes, at least in many cases. Just check that it is not your case.
Wise Value Investing 