Avoid Running Out Of Money In Retirement

  • The truth about how long most people's retirement lasts

  • The "big 3" changes that most portfolios don't account for

  • Simple changes to maximize returns you can make today

  • Home
  • Blog
  • 401k
  • The Mutual Fund Industry Is A Huge Scam That Costs Investors Billions Of Dollars A Year

The Mutual Fund Industry Is A Huge Scam That Costs Investors Billions Of Dollars A Year

Yale’s legendary investment guru, David Swensen, has shredded the mutual-fund industry recently in the New York Times

Swensen points out what anyone who has objectively studied the facts of investing inevitably comes to realize: The fund industry costs investors billions in lost returns every year–while coining money for itself, its employees, and its distributors.
The primary promise of the traditional for-profit fund industry–that it’s smart to pay a star fund manager huge money to pick stocks for you–is blown apart by performance data, which shows that the vast majority of funds lag low-cost institutional funds every year.

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.