Analyzing Your Mutual Fund

Fund Expenses

A quote from fundgrades.com, an online fund analysis tool.

Expenses are 100% certain while past performance IS NOT an indication of future results. Is there any evidence that expenses are predictive? The truth is, NOTHING is predictive for picking winners. However, expenses do tend to have some statistical connection, and a not surprising relationship to keeping the odds of getting burned minimized. This statistical connection and relationship of expenses to results has been documented in numerous academic and industry studies.

fundgrades.com is a free online service that will help you decipher costs you don’t see directly in your mutual fund portfolio. They also have a proprietary fund analysis that may be helpful in sorting out the multitude of fund choices.

I am NOT familiar with their Wealth Care Capital arm. It is an RIA, Registered Investment Advisor, which means they sell advice for money. It does not mean any government agency has “approved” of any of their investment methodologies.
Based on a quick tour of their site, they appear to be genuinely trying to offer sensible, cost efficient solutions to both investors and their advisors. I don’t know anyone who works there and have no experience with their company. I consider it a huge positive that they offer what seems to be an unbiased look at funds and fund performance. On that basis, I can suggest you explore the fundgrades.com site and test drive a few of your mutual funds through the process.

Look in "Other Links" box for a link to fundgrades

United Mistakes of America

A friend of mine e-mailed me a Hillary joke. It made me start thinking about politics, something I try to avoid. After I’ve listened to a politician, I have an irresistible urge to take a shower.
Any election is regrettably about electing the least objectionable candidate. I must disclaim, I haven’t voted for anything in 20 years. The decision was simple for me, anyone who wants to run for office is automatically not someone I would want to vote for. Anyone, for any reason.
Besides, I can’t get my mind around why people call them “leaders” and “public servants” in the same breath.
The differences between the blues and the reds are manufactured “issues” designed to keep third party candidates out of the races. Think about it. The major things government can do are:
Maintain the infrastructure, they don’t
Operate quality schools, they don’t
Provide universal heath care, they won’t
National defense would be infinitely cheaper and simpler if we didn’t go sticking our nose into everybody’s business, starting with the Shah of Iran after we helped him depose the Ayatollah Khomeini. That was helpful, wasn’t it?
Instead, they babble about abortion, flags, the ten commandments and family values. The immigrants who risk life, limb, and imprisonment to send a few bucks home the their families have family values. We have divorce lawyers, and juiced up hyper-parents trying to jam their kid into Harvard so she, too, can be sucked up by the machine.
Politicians piddle around endlessly with the tax code, creating all kinds of unintended consequences (recall the late 80’s real estate S&L meltdown after they pulled 15 year accelerated depreciation because it created too much unnecessary real estate? That would be at the helm of his majesty Ronald Reagan.)
-recall the stock option debacle of playing hide the money and pretend accounting which led to the tech crash, Enron, WorldCom, Tyco et. al.
-recall the tax advantaged hedge fund rules that incentivized enormous risk and quite nearly, once again, melted down the financial system.
-recall the deregulation of airlines which led to seats the size of postage stamps, surly ‘flight attendants’ handing out miniscule bags of peanuts which morphed into tasteless pretzels because the chronically allergic nuts can’t be on the same plane as an edible one. Want to give a starving family a laugh? Tell them your troubles with lactose intolerance and peanut allergies.
Deregulation created multiple and repeated bankruptcies (how can the same airline, Continental, go bankrupt three times? Isn’t there an incompetence penalty of some sort?) Heckofajob Brownie!
-recall the, so far, one TRILLION dollars in off budget debt we’ve issued to fight a war the (oxymoron alert) Iraqi army mostly refuses to. They don’t have time to fight. Too busy carting off bundles of our money in graft and plain theft. Can somebody somewhere understand, you can’t fix the world’s shit at any price?
The most amazing illogic I’ve heard recently is that we have to keep putting more troops at risk to honor the troops we sent to get killed in the first place. How stupid is that?
J. Krishnamurti said it 50 years ago, “If you really loved your children, there would be no war.”
Of course, the politicians are us, not some ‘other’ people. We are gullible and lazy, greedy and indifferent. We pay a heavy price for it.
Which brings me full circle to the beginning. You may fairly ask, if you don’t vote, what are you doing to fix these issues? Nothing, with all my heart. I suggest, if nobody votes, maybe the politicians would have to start listening to voters instead of corporate lobbyists. Maybe they would be forced to have a real choice of candidates, not merely two.
See, when there’s only two viable parties, it doesn’t matter how many politicians start running, in the end you are getting two choices. You are getting two choices financed by massive lobbies, virtually equally. Look at the bigger donors, they give out of the left and the right hand. Campaign “issues” are crap to rile up voters. Once the campaign is over, the elected answer to the same masters. Voters are just a necessary nuisance along the way.

Double Your Fun...Almost

Same exposure with less money
or
Greater exposure for the same money

What am I talking about?
There’s a new class of ETF available that, with the use of derivatives, allow you to buy, for instance, the Dow 30, but give you almost twice the volatility. I used two words in one sentence that drive many investors screaming from the room. Derivative and volatility.
These are no always all bad. What happens with this ETF is that when the Dow goes up 1%, the Ultra Dow Proshares, symbol DDM, go up about 1.7%. (They advertise that the objective is twice the Dow’s performance, up or down. In reality they get about 1.7 % or so.)
You can leverage your investment and not have to go on margin to do it. Understand, these swords have two edges. Dow up 1%, the DDM will go up 1.7%. Dow down 1%, DDM down 1.7%
What it allows you to do is simple. Let’s say you have 20% of your money in the Dow 30. You have a $100,000 stock portfolio. Instead of $20,000 of the Dow 30 Diamonds, the DIA, you buy $12,000 of the Proshares and you have the same market exposure as you have now. You can put the $8,000 into money market and earn interest without reducing your stock market exposure.
Or
You can increase your market leverage and put the $20,000 into the DDM instead of the Dow 30 and get more market bang for your buck, without putting any more dollars into the market.

There are leveraged ETF’s for the Dow 30, S&P 500, The NASDAQ 100, various Russell indexes, even for various market sectors. (I am not favorably disposed to sector bets, but suit yourself.)

Not surprisingly, you can also go short many of these indexes using ETFs and there are also ultra-short, leveraged, ETF’s. Something for everyone.

You can explore them at www.proshares.com
No, I don’t work for them, no I am not compensated by them, they don’t have a clue who I am.

Be advised, leveraged investing is for grown-ups. I rate these products NC-17

Can’t Anybody Here Play This Game?

Casey Stengel said it about the N.Y. Mets, now we can say it about so called market experts. Just yesterday, a well regarded oil analyst in New York, whose name and company I’ve removed said, “Oil and commodities became a safe haven. It was the last thing that bankers can hang their hats on. Everything else had melted before their eyes.”
He was referring to the commodities price retreats of the last two days. Let’s take a minute to think over his comment.
The most recent market high back in October 07. From then until today:
Dow Jones Industrials -13.8%
S&P 500 -16.2%
EEM (emerging markets index, very volatile) -23.6%
IYR (dow reit, real estate index) -31.74% (reit high was February 07)

That’s from the two year highs. There is no particular reason to measure from there, it’s just the worst case example. There’s no reason to measure from a year ago, or the end of 2007. There’s nothing magical about any of those dates. As Warren Buffet said long ago, “There is no reason to measure investment performance by the time it takes the earth to travel around the sun.”
If you rebalance annually, then you will at some point buy more of the things that are down and sell some things that are up. You don’t alter your percentage of asset class allocation. You maintain, after rebalancing, the same percentage in stocks, bonds money market and real estate (which I view as a separate stock class.)
To do anything else turns you into a market timer. You aren’t a market timer, neither is anyone else. They think they are, they aren’t.
It is entirely true that all the stock classes went down. They all didn’t go down by the same amount, and if you had a six to ten year laddered bond portfolio as part of your mix, you made good money in that. Maybe not enough to make up for the poor market, but a very decent hedge.
What about our oil analyst’s expert comment? That all bankers had to hang their hat on was increasing commodities prices, “everything else had melted before their eyes.”
Is that true? Melted? The IEF, Lehman 7-10 year treasury fund, was up 12.5% from the beginning of the real estate index decline through yesterday. And that doesn’t count the dividends, you can tack on 3 to 3.5% to that return.
Yes, I can do basic math, 15% up in treasury returns doesn’t equal 30% down in real estate. However, that assumes you had the same amount of money in the reit index as you had in the treasury index.
I hope you catch my point. The dramatics of our anonymous expert aside, things were ugly, they didn’t melt before our eyes. A well diversified portfolio might have wound up with losses from the high through today, but was hardly decimated. If you’re going to be in the markets, the equity markets, you are going to have these periods. They’re good for everyone in the long run, they wash out the stupidity, the greed and, best of all, they eliminate the idea that you need a gaggle experts to run a decently managed portfolio. I keep telling you, they can’t do what they say they can do, beat the averages. Not in any market, for any reason, no matter how big their brains, their parallel processors or their balls.

You Can’t Know Until You Know, You Know?

The New York times reports the market’s getting crushed on “fears that a recession may be imminent.” Maybe so. The dilemma is, a recession is defined by two or more quarters of negative growth. So you have to have the recession for six months before you can say you have it, by which time you’re likely headed out of it.
The last recession was in 2001, it was short and shallow. The average length of past recessions has been 11 months, counting the six months you were in it but didn’t know it.
I saw the following headline in Slate,

The "R" Word
Are we heading into a recession?
By Daniel Gross
Posted Monday, July 31, 2006

Note the date. That recession never happened.
The ‘what is’ of the situation, however, is that investors get panicky, pull a ton of money out of stocks, resulting in these slides. Then even more investors get panicky and keep the cycle going while everyone hyperventilates, then it quits. The ‘quits’ isn’t predictable. When the market does turn around, these same investors will buy back much of what they sold, likely at prices near what they sold it for in the first place. The only people who net made money are brokers and floor traders.
It’s one of the reasons Wall St. likes recession predictions. They know you’re going to panic. They get to rearrange your portfolio to something else. It won’t be any better than you had in the first place, you’ll spend a lot on commissions or fees and you’ll thank them for doing it. At Christmas, they send you a card.
If we are in a recession, well, that’s what happens. Things expand and contract. they get too fat, then they get too lean. Except in America, we only get fat.
We seem determined to jawbone ourselves into recession. It gives talking heads something to keep you tuned in for the next commercial, it gives politicians “issues,” it gives financial reporters a chance to do columns about the last recession, historical averages, blah, blah, to fill up the space between advertisements in the newspaper or magazine.
We need a recession, it helps sell stuff so we don’t go into a recession.

It Isn't What Happens, It's What You Think About What Happens

Today is February 26, 2008. Today the business headlines are:
-new data show rising inflation and declining home values
-foreclosures at record levels
-consumer confidence at its lowest level in 5 years
-worries that if the Fed lowers interest rates, it will pour gasoline on the fire of inflation, and if it doesn’t, nobody will ever buy anything ever again, ever.
-Serbs attack US consulate
-Taliban interferes with NATO
-virus on cruise ship sickens dozens (are you starting to wonder why people get on the damn boats in the first place? “Honey, for our vacation, let’s get on a huge floating Petri dish packed with people with less brainpower than a fruit fly and the manners of a slug, eat outrageous amounts of food and catch a virus. Maybe it’ll even be a deadly virus!”)
Where was I?.....Oh, yeah, so in the light of no good news whatsoever, death in the buffet line, and perhaps the beginning of the end of the world economy, the Dow Jones Industrials are up 100 or so points.
If your fund manager had read today’s headlines yesterday, he would have sold out all his equity positions, and you would have thanked him for doing it. Don’t waste my time telling me you or he knew the news wouldn't hurt the market, and that the markets earlier corrections had already “predicted” this news. He didn't, you didn’t and the market didn't. There's an old saying, 'the market has predicted 7 out of the last 4 recessions.' The tea leaves only tell you what you want to hear.
Economies shift, all day everyday. Companies make good decisions and bad ones. Things wear out and get replaced, the population grows. More things get bought. Companies make money. Over time, this plays out in higher stock prices. In between, there are the zigs and zags of human behavior. Which is why the thing doesn’t go up in a straight line, and why you get a higher return for accepting the volatility.
The point is the same as it always is. There are no accurate predictions of future prices. Don't pay for what you can't get.

Buy? Sell? Hold? Choke? Puke?

Let’s talk over some ideas about actual things to stick in your portfolio. If you’ve read the blog from the beginning, you understand my few fundamental premises.
No one, nowhere, no how, can predict security prices, the “best” mutual funds or the “hottest” money managers. They can tell you which ones DID the best, not which ones WILL DO the best. That's like paying an historian to tell you the North won the Civil War.
Therefore, paying someone to select stocks for you is a complete waste of money. It doesn’t matter if it’s a local broker, a mutual fund manager, private money manager or, god forbid, a hedge fund.
You can go to the prior posts, the early ones, and retrieve my thoughts on asset allocation and diversification. Now it’s time to talk about what to buy, specifically. Again, if you’ve read the prior posts, you know I recommend ETFs almost exclusively. If you have a 401k which doesn’t offer ETFs as an alternative, then choose the index funds available, not the managed funds. You will be tempted to pick the fund with the best “track record,” otherwise known as historical performance. Do NOT do it. You are not investing in the past, you are investing today. Past performance tells you exactly zero about future performance, so ignore it.
Here is the list of ETFs I like.
IJJ- S&P mid-cap value or JKI -Morningstar mid value index
IJS- S&P small cap value or JKL -Morningstar small value index
IYR-Dow Jones REIT index or ICF -Cohen Steers REIT index
RSP- S&P 500 equal weight index
I prefer value indexes to growth. You buy large, medium, small cap because there is some performance difference over time based on the size of the company. In theory, smaller stocks have more risk, thus higher return over the long term. In fact, middle sized stocks have performed better over time, so go figure. The main reason i suggest the above mix is that there is almost no duplication. You don't own the same stocks in the mid-cap fund as the large cap RSP or the small cap IJJ. Investors chronically hold three or four mutual funds with 30-40% or more of the same stocks in them. Another consequence of buying track records, or labels. One fund says growth-income, another growth, another American Value something or other, and the investor thinks he has diversified. You can't tell what's inside the fund by what it's called. One manager's growth is another's value, there is little consistency.
For international investing, I am seeking risk, not comfort, so I use the EEM or VWO which are two versions of the same index, the MSCI Emerging Markets Index. VWO has smaller administrative charges, thus over time should perform better since they both have the same stock mix.
I do NOT buy sectors or countries. No one is any better at picking sectors or countries than they are at picking mutual funds or individual stocks. It cannot be done with any accuracy and merely results in moving things around uselessly, usually at the exact wrong time.
If you want to simplify bond buying, use the following
SHY-Lehman 1-3 year treasury
IEI-Lehman 3-7 year treasury
IEF-Lehman 7-10 year treasury
NEVER buy bonds for yield, never buy corporates, munis are overrated for return, the yield almost always equals out to the amount you’d get on taxables after you paid the tax. Suit yourself on this however, it makes some people feel better to pay no tax on the income.
You want higher returns, buy more stocks. Drill into your brain, you buy bonds to get predictable income. Don’t stupidly increase the risk on the safe side of your portfolio to chase a point or so more yield. If you prefer individual bonds, buy government agencies no more than 10 years out. Buy a ladder, some due in 6 years, some in 7 on out to 10. When the 6 year becomes a 5 year, sometimes it pays to sell it and buy the next 10 year maturity (your former 10 year will be a nine year at this point.) Each year you sell the one with 5 years left, buy one with 10 year maturity. It doesn’t have to be scientific. If you let them ride for two or three years, then replace, it’s okay. In general, you want the yields in the 6-10 year range because they offer about as much income as you would get from a long term bond, without the price fluctuation of a long term maturity.
Next time, Want MORE Risk? There are ETFs for you. Actually several of them.

Let’s Worry Ourselves Into Recession

Does it occur to anyone that persistent hand wringing over the potential for recession does as much to create the recession as anything else?
I first heard about recessions when I entered the world of financial services in 1980. Until then, economic reports were for me just a lot of babble about big numbers. None of meant anything and had no clear effect on my daily existence. Then for 20 or so of my nearly 30 years in the financial business, economic numbers were part of the fabric of my work life. We had endless discussions about recession, interest rates, the Fed, the Chairman of the Fed, Republicans or Democrats, the dollar, yen, euro, ruble and the employment/unemployment rate. After thoroughly vetting all of the above, we called our clients and made portfolio suggestions based on our interpretation of what had been discussed. Or we followed some formula of stocks, bonds and cash concocted by the firm's research department. We might have further endless discussion about which stocks, which industries, whether to have international exposure or no, and any specific corporate messyness and the anticipated duration until resolution. Then we thought about about what quality of bonds were appropriate, a lot of mumbo jumbo about the "spread to treasuries" and what maturity ranges to buy or sell.
All of it, every word, research report, conference call and meeting was completely useless as a practicality. The only thing it did was to supply gibberish to cover over our complete ignorance when we talked to clients. Every report, verbal or written was sprinkled with so many caveats, maybes and ifs, as to be pointless as a frame of reference.
If the client did nothing, or made only minor modifications, which was usually the case, it all worked out fine. If they made some wholesale allocation change, it was usually a disaster, first because it cost them a fair amount to uproot and repot all the money. Second, because the transplanted funds were no more wisely invested than they had been in the first place.
It’s true that the new portfolio might have performed better for a while than the original one. It is also true that it likely performed no better at all, or worse. What is absolutely true is that, 100% of the time, nobody ever knew the answer because once the portfolio was altered, no one tracked the performance of the original one.
It was, and is, a colossal joke. I got much better results for clients when, for the last part of my career, I actively ignored all the economic numbers and file 13'd any research reports that accidentally crept onto my desk. I have subsequently had discussions with broker friends who tell me they absolutely agree, then, honest to god, they e-mail me some guru's market babble two days later with a note, "this guy makes a lot of sense."
I finally noticed that, first, when the market goes up, any decently diversified basket of stocks goes up the same amount. Yes, there are spurts of small stocks, or international stocks, or sector bursts. In the end, it all evens out, and nobody has ever demonstrated any consistent capacity to pick the right time to get in or out of a sector, or an industry or whether to be in or out of the market at all.
Your brokerage firm just wants you to shuffle the money around. They really don’t care why you do it, just so you do it. If you don’t do it enough, your brokerage firm will supply you with loads of reports telling you why you should. Bear in mind, all the information they supply has already been factored into the price of your stock or bond, including all the anticipated information about your stock or bond. By definition, when you do that, you are selling or buying on useless information. It can’t be any other way. The only information that would be useful is information that you cannot know, that nobody can know. It is the unexpected. You can’t know the unexpected because it’s, well, unexpected.
Instead, we listen to talking heads and “analysts” telling us all about the impending signs of a recession, which frightens corporate pooh-bahs into hiding, laying off and cutting back. Eventually this turns into a slow growth or no growth situation which turns into a recession. Essentially, we talk ourselves into it.
I remember my first real job. I got it in 1973 or thereabouts. Unbeknownst to me, in the middle of a recession. I got a decent salary and a company car, benefits fully paid by the company. I proceeded to grow the sales of the products I was hired to sell, was subsequently promoted and promoted again. If I had known what a horrible recession I was in, I would have failed miserably.

Less is More

FINRA, the Financial Industry Regulatory Authority, formerly the NASD, has updated and improved their website with some very useful investor tools. The one I’m highlighting today is the Mutual Fund Expense Analyzer.
Some things you should know. This tool helps you figure out, in advance, what the entire cost of any fund you research will cost over the next up to 20 years.
This is NOT a historical performance comparison tool. You pick a rate of return, a dollar amount and a time frame and the analyzer will tell you what the fund will be worth AFTER the costs are accounted for. It adjusts for breakpoints, for share class types and includes ETFs as an option.
You can select up to three funds at a time and it will compare how much each would cost at the rate of return you chose, in the time selected. The differences are amazing.
The reason they don’t do it based on historical performance is simple. Historical performance is meaningless in predicting future performance. Meaningless as in useless, not applicable, tells you nothing and, in fact, biases you to believe that the past performance will be replicated in the future, which is dead wrong.
The analyzer is simple to use once you’ve gotten the hang of what it’s asking for in the steps it wants it. I explain how to use it at the end of this post. Here’s a summary of three funds I selected. One is a load fund from American Funds, one is a Vanguard no load, the third is an index ETF (Exchange Traded Fund.)

After 10 years, $10,000 investment earning 10%

Growth Fund of America $22,935.53 after $1,544.20 in fees and sales charge

Vanguard Growth Equity $23,691.30 after $1438 in fees, no sales charge

ishares S&P 500 ETF $25,705.17 after $149.65 in fees

What really struck me was that, even with a 5.75% upfront sales load on the American fund, the Vanguard fund didn’t do much better, because of the effect of the internal management fees. The ETF blew both the mutual funds away.
Again, this is NOT a performance measure. It is a cost measure, which matters, very much.
The reason the upfront load has less impact on the long term is not always simple to understand.
When you invest and pay a sales charge, you pay on the amount you invested, in our case $10,000. The internal fees, however, are ongoing and are based on the amount the fund is worth when they are charged. So, as the fund grows, the dollar amount of the management fee gets bigger. This is why the Vanguard Fund didn’t do all that much better on costs than the load fund in the long term. After 20 years, they actually cost more than the American Fund, and the net return on American had almost caught up to Vanguard.
Naturally, these projections have to assume that fees stay the same going forward. Most managed mutual funds have not lowered internal fees over the years, that's a whole 'nother discussion.
FINRA is to be congratulated for its efforts in this area. The sooner investors get it in their heads that past performance is unrelated to future performance, and that they price they pay, particularly the annual percentage that taps into their account, is exponentially more important than a “track record.”

Fees are the Death of a Thousand Cuts

Fees hurt a bit another way in that every dollar you take out of the account is a dollar less that is earning money. Mutual funds generally take their fees monthly.
You can see the evidence in the summary above. If you add fees back into to the final amount, you find that there are still differences in the results.
Taxes will also matter, though not addressed in the above analysis. That’s because mutual funds make annual capital gains distributions whether you want them or not. If you money is in a tax deferred vehicle, that might be okay. Otherwise you may have to pay tax which will come from your assets in some form.
Index oriented ETFs do very little buying or selling, some years none at all, thus no tax until you choose to sell.
Now you know more than most brokers. You know shopping track records is a waste of time. You know that there is no rational or even mystical way to “outperform.” You know that paying someone to outperform is pointless. (At least for you, the guy who gets paid likely thinks differently.) And you know that costs matter, quite a bit.
If you want to pay and advisor, that’s fine. Pay him or her for advice that you can use, like tax efficient vehicles, a good asset allocation program, making sure you stay on track, keeping you diversified and rebalanced appropriately. Do not trade, do not buy options, futures or any other derivative, do not pay ongoing fees unless you require a lot of monthly handholding. Then you should pay a nuisance fee of some sort because you’re being a nuisance.
BEWARE
Not all ETFs are cost efficient. Not all ETFs are merely proxies for unmanaged indexes. Lots of ETFs are merely mutual funds in disguise, trading, moving aound money, increasing expenses. I use index oriented funds with brand names. I ran the analyzer on the Claymore mid-cap growth ETF, I don’t know Claymore from a stump in the forest, and the expenses were worse than the mutual funds, twice as much as American’s and Vanguard’s on the funds in my example. I presume it was named after the Claymore mine, a particularly nasty device that remains concealed, like the fees in the fund. When the mine version goes off, it spreads shrapnel, killing or injuring anything in it's explosion path. The Claymore Fund works differently. It shreds your portfolio from inside. Think of it as a vampire that sucks just enough blood to keep itself fat while not actually killing the victim.
The FINRA mutual fund analyzer can save you from the ugly feeling investors get when they think they’ve bought into a good fund, but they just can’t seem to make any money.
It’s been a long slog through this blog. I thought the information important enough to justify the length.
Now, how to use the analyzer.

First go to www.finra.org (you may leave this page if you go there now, so you may want to read through to the end first, or open another screen and type in the FINRA website so you can refer back to these instructions.
On the top right is a tab that says “Investor Information” click it.
On the page that comes up, in the left column, it says “mutual funds” click it
You will see a selection that says “mutual fund and ETF expense analyzer” click it.
You will see a screen that lets you choose up to three funds. This is where you have to feed the beast in the order it wants to be fed.
Go to fund 1, in the dropdown, pick a fund family. I went to American Funds (there are several that start with American, just plain American funds.)
Click search. You do this so that the program can load all the American fund choices.
The drop down box beneath says ‘select a fund or share class.” click and scroll to the fund you want
I used Growth Fund of America, the “A” shares, click on the fund. Now your Fund 1 section should say American funds then Growth Fund of America.
You can enter two more funds if you wish, it’s not required. Of course you want to compare alternatives, so I went to Fund 2 and picked Vanguard Funds, then Vanguard Growth Equity Fund. Remember, you have to “select” Vanguard first, then make your choice of the Vanguard Fund you want. I used Vanguard because there is no load, or sales charge.
Finally I wanted to compare them in cost to an S&P 500 index, so for Fund 3 I picked ETF (which is the first choice in the fund list. Then I went to the ishares S&P 500 index fund. The standard index.
You’re almost done.
Enter your investment details, use any numbers you want.
I used $10,000
10% rate of return
10 years
I must lack imagination.
Click on “calculate my expenses.”
Up pops a report which explains how your $10,000 investment would do if each fund returned 10% for the time you selected, in my example 10 years.
Suffice it to say, the price you pay for the fund, both sales charge and internal management fees dramatically affects results. You can think it in your head, seeing it in color is an eye opener.

Now is Now

This is sort of an emergency note. The market has been tanking, you already know that. I'm not going to toss off a bunch of statistics about good and bad days versus the big picture. I'm not going to recap past market moves and compare them to this situation, then draw a conclusion about what will happen because of what happened the last time something similar occurred.
The reason I'm not going to do it is simple. It has no meaning. It's useless, there is no historical predictor. Quit looking for certainty. It isn't there. If it was, then the market wouldn't exist, everything would be a fixed rate. We would all wear grey and there would be no Britney Spears or Paris Hilton. (I didn't say it would be all bad, just monotonous. You can say what you like about Brit and Paris, they're hardly monotonous. Obnoxious, vapid, silly, but not boring.)
The point is not to discuss pop culture. The point is that the market is going to do these things from time to time, act like Britney and melt down. Now is your time to decide how crazy the market makes you. If it's too crazy, then you have too much of your money in it. The market is not going to change to make us happy anymore than Dr. Phil is going to turn Spears into a model of virtue and chastity. Our behavior, like hers,is up to each of us.
Your dilemma, if you have one, is not wanting to sell now, because you've taken this big hit. I empathize, I can't fix it. I'm very much in the same boat. ALL my money is in the market, NONE of it is in CDs, Treasuries or buried in a mattress.
That's me, not you. Take this moment of financial agony and check your monetary temperature, and temperament. If the fever is too high, you found out something you needed to know.
Finally, it's foolish to get an ulcer over money. Try, if you can, to analyze what you think, question it. Portfolio setbacks are a problem if you decide to think they are a problem. Can you question that? Are they really?

The Only Change on Wall Street

The only changes on the Street are the names of CEOs and the schemes their minions devise to peel off pieces of your money. Let's do a mini recap.
There is no way to ‘outperform’ the market without taking increased risk. And that's not really outperformance. It's like saying a 300 pound weightlifter "outperformed" a 120 pound one because the big one picked up more weight. You have to adjust by the lifter's size, compare pound for pound as they say.
People think of outperformance as, 'did I get a higher return than the S&P or Dow?' That’s not how to look at it. You outperform, really, only when you got a higher rate of return and took no more risk than the index.
Pound for pound.
When you got a higher return and took more risk to do it, you didn't get rewarded for being smart, only for taking more risk.
It works the other way too, as Citigroup, Merrill, UBS and a host of investors discovered. They took outrageously leveraged bets on derivatives and, for a while, everybody looked smart and pretty, like closing time at the bar. Money is an intoxicant too.
Then the risk part of risk and reward happened. The only people who didn’t take any risk were the CEO’s who got paid millions for their abject failure. I’ve had my share of failures. None of them resulted in me getting a pot of money so huge I could heal my ego in platinum Bentleys.
What’s so amazing is, none of this is new. Remember Long Term Capital Management? A couple of years turned out to be all the long term they could handle. There was the failure of other major hedge funds before the subprime meltdown, Tiger Funds, Aman Capital, Marin Capital, Bailey Coates Cromwell Fund, Amaranth, just to name a few. Since they don't have to report to anyone, there's almost no way to know how many lesser funds just evaporated. All of which failed before sub-prime was even in the lexicon. So much for Santayana. He was never right about remembering history anyway.
After the subprime mess, my guess is the net return of all hedge funds for all time surpasses even the miserable track record of the aviation industry, the net return of which is zero.
Of course airlines failed for different reasons. A long time ago, airlines decided that stewardesses should be flight attendants. Stewardesses were attractive, friendly to a fault, and generously passed out food and drink to inebriated businessmen. In those days, stews left the job when they became mothers. Now they’re still grudgingly handing out pretzel crumbs when they become grandmothers. I can imagine the first 100 year old active flight attendant as Time Magazine “Person of the Year.” By then, there won’t even be seats the size of grammar school desks. We’ll be jammed on rows of plastic benches like some Disney ride and a bar will drop down to keep us all in place. We’ll sit fanny to fanny like hordes of fans at a Packers game. Toilets will be built into the bench, no need for that “keep your seat belt fastened just like we do here in the flight deck” announcement. How did I wander off? Where were we?
Oh, yes. Outperformance. Well, there is no such thing when you take risk into account. You can’t get a higher return than an index with the same risk, you can’t get the same return as an index with lower risk. Despite promises made by money managers and hedge fund dweebs the world over. If they say they can, they are either ignorant or malicious. Which one do you want your money with?
After this recent debacle, the dust will settle and some new genius scheme to trade your account for fees and commissions will emerge. It will sound really good, it will have a very exciting “track record.” It will say, on the cover, some version of “Past Performance is No Guarantee of Future Results.” Ignore that message at your peril.