Since youre paying these fees you should know what they cover Youre paying for

Since youre paying these fees you should know what

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Since you’re paying these fees, you should know what they cover. You’re paying for the privilege of active management . That means that you’re paying someone to use his best judgment every day to put your money to work and give you a high return in the long run. Your fund manager is supposed to get you out of overvalued stocks before they go down, and get you into great stocks if they are available at a good price. After all, that’s the whole purpose of active management. If all he was
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going to do was match market returns, then there is no real purpose to active management, right? You’d be spending your money on something and getting nothing for it. Now here comes the other half of the scam: These highly paid fund managers can’t outperform the market index . More precisely, a recent Forbes study found that only 4 percent of fund managers beat the market over a fifteen-year period. Another study proved that the pension fund managers were no better. Only 4 percent of pension funds beat the market over a fifteen-year period, too. These facts might have been what Warren Buffett was referring to when he said, “People get a lot for their money when they hire a professional, like a plumber or a dentist. But people get nothing for their money from professional fund managers.” So maybe “active mutual fund management” is a waste of their time and your money. If that’s so, then what does your money really buy? You pay for the fund’s sales force, you pay for the fund’s slick marketing, you pay for the Super Bowl halftime ads, you pay for their trading costs, you pay for their big offices on Madison Avenue, you pay for the fund manager’s two-martini business lunches, you pay for the fund manager’s kid’s tuition at Dartmouth and his weekend home in the Hamptons. You pay for his first-class airfare to visit a potential investment in Hawaii. You pay for the Four Seasons hotel room and his $300-a-round golf match with the CEO of the business that he’s thinking of putting your money in. You pay for his company’s massive propaganda campaign to keep you convinced that only [insert the name of any mutual fund organization here] can get you the results you’re looking for in your retirement. FINANCIAL PORNOGRAPHY Here’s a verbatim quote in an ad from the largest fund-management company in the world: “Our funds are … managed by some of the most experienced professionals in the business. Maybe that’s why we offer you more 4-and 5-star funds than anyone else.” Note the word “maybe.” Well, maybe not. The reason they offer more top-rated funds than anyone else is that they have more funds than anyone else. Actually there are several fund companies that have more highly rated funds as a
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percentage of their total funds than these guys. In fact, these guys have one of the most dismal records for highly rated funds as a percentage of total funds of all the fund-management companies. But it sure doesn’t read that way in their advertising.
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  • Spring '20
  • Warren Buffett

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