Meanwhile, urged on by misleading “quality” rankings, investors consistently choose to invest
in funds that have done well in the past
, not funds that are likely to do well in the future. Cost is a big component of underperformance.
The manager’s salary is deducted from the fund’s returns, and most managers aren’t good enough to offset the cost of their salaries and their employer’s profits.
So, Why don’t financial advisors tell their clients these simple facts?
It may be because financial advisors are often incented (paid) to recommend certain funds over other funds–and the commissions on high-cost funds are generally higher than those on low-cost institutional funds.
The facts are demonstrable. If every American who owns a high-cost actively managed mutual fund sold it and bought a low-cost institutional fund, the average returns of America’s investors would rise considerably–in part because American investors wouldn’t be paying billions of dollars of fees each year to mutual fund companies to lose money for them.
If a broker sold you a fund run by a stock-picker, he probably swindled you.