Just One Man's Opinion - 21 July 2005
by JMac
MUTUAL FUNDS -
Mutual funds are a great the average investor, as defined in my first article (July 1). There are thousands of them out there, They consist of stocks, bonds or indexes. Recent scandals have tarnished the image of the industry, but one of the family of funds that was not sullied was Vanguard.
First, I will disclose that my wife and I have a mutual fund portfolio, IRA's and a 401k that consists of 90% Vanguard Funds, including the S & P Index, Total Market Index, Russell Small Cap and Mid Cap Index. We started out several years ago with six or seven different funds and after weeding out the losers were left with mostly Vanguard funds.
There is so much to like about Vanguard it is hard to know where to start.
John Bogle started the indexing craze in 1975. He has written several insightful and easy to read books on the subject of mutual funds. He has been a consistent critic of the industry. His critiques have proven to be true in the latest revelations, uncovered by Eliot Spitzer and others..
Today, the company is run by his longtime protege, John Brennan, and the index funds by Gus Sauter. Bogle argued for years that the industry was "ripping off" investors with exorbertent costs, hidden fees and questionable trading practices.
Bogle correctly points out that expenses count. Expenses, loads, redemption fees and tax inefficiency can cut as much as 25% or more of your gains.
LOADS - do not buy a fund with a front-end or back-end load. They take your money right off the top before you earn a dollar. There are a multitude of no-loads funds out there. Do not buy a fund with a redemption fee incurred in less than one year.
EXPENSES - What a rip-off ! If a fund is charging more than 1% for expenses forget about it.
TURNOVER - if the fund is turning over more than 50% of its holding in a year, run away. They are "churning" and making profits on the "rebates" (kickbacks) they get from trading houses.
The average expense ratio for all funds in 2004 was 1.40%. Vanguard's is much less, usually with no-load. The Vanguard Total Market Index Fund has an expense ratio of 0.19%!
How do they do it? First, they are an investor owned company, i.e. when you buy a fund you also are buying a piece of Vanguard, like a mutualized insurance company. Second, they are HUGE. They now manage 850 billion dollars, second only to Fidelty. Companies want Vanguard's seal of approval so they strive to perform and please this giant once their stock is in one of its funds.
PERFORMANCE - The Vanguard S&P Index outperforms two thirds of the managed funds nearly every year. The Vanguard Health Index Fund and Vanguard Energy Fund have been two of the top ten performing funds for the last ten years.
There are a lot of very good fund families out there, including Dodge & Cox, which I also own. However, few are as investor friendly and operate with such efficiency AND integrity. Many of their funds require only $50.00 to get started and will accept as little as $100 after that. Do your own research. There are a lot of great books out there which can guide you no matter your investment goal, style, or income. Be sure and look at Morningstar ratings and comments. Somewhere there is a fund, or funds that offer you every investment vehicle that currently exists, stocks, bonds, convertible bonds, options, hedges etc..
If you want to get rich fast, look elswhere, but if you want peace of mind, go with the best of breed - Vanguard.
GOOGLE WATCH - Jim Cramer predicts Google will be added to the S&P 500 soon. If that happens, all the S&P index funds will have to buy it.
MUTUAL FUNDS -
Mutual funds are a great the average investor, as defined in my first article (July 1). There are thousands of them out there, They consist of stocks, bonds or indexes. Recent scandals have tarnished the image of the industry, but one of the family of funds that was not sullied was Vanguard.
First, I will disclose that my wife and I have a mutual fund portfolio, IRA's and a 401k that consists of 90% Vanguard Funds, including the S & P Index, Total Market Index, Russell Small Cap and Mid Cap Index. We started out several years ago with six or seven different funds and after weeding out the losers were left with mostly Vanguard funds.
There is so much to like about Vanguard it is hard to know where to start.
John Bogle started the indexing craze in 1975. He has written several insightful and easy to read books on the subject of mutual funds. He has been a consistent critic of the industry. His critiques have proven to be true in the latest revelations, uncovered by Eliot Spitzer and others..
Today, the company is run by his longtime protege, John Brennan, and the index funds by Gus Sauter. Bogle argued for years that the industry was "ripping off" investors with exorbertent costs, hidden fees and questionable trading practices.
Bogle correctly points out that expenses count. Expenses, loads, redemption fees and tax inefficiency can cut as much as 25% or more of your gains.
LOADS - do not buy a fund with a front-end or back-end load. They take your money right off the top before you earn a dollar. There are a multitude of no-loads funds out there. Do not buy a fund with a redemption fee incurred in less than one year.
EXPENSES - What a rip-off ! If a fund is charging more than 1% for expenses forget about it.
TURNOVER - if the fund is turning over more than 50% of its holding in a year, run away. They are "churning" and making profits on the "rebates" (kickbacks) they get from trading houses.
The average expense ratio for all funds in 2004 was 1.40%. Vanguard's is much less, usually with no-load. The Vanguard Total Market Index Fund has an expense ratio of 0.19%!
How do they do it? First, they are an investor owned company, i.e. when you buy a fund you also are buying a piece of Vanguard, like a mutualized insurance company. Second, they are HUGE. They now manage 850 billion dollars, second only to Fidelty. Companies want Vanguard's seal of approval so they strive to perform and please this giant once their stock is in one of its funds.
PERFORMANCE - The Vanguard S&P Index outperforms two thirds of the managed funds nearly every year. The Vanguard Health Index Fund and Vanguard Energy Fund have been two of the top ten performing funds for the last ten years.
There are a lot of very good fund families out there, including Dodge & Cox, which I also own. However, few are as investor friendly and operate with such efficiency AND integrity. Many of their funds require only $50.00 to get started and will accept as little as $100 after that. Do your own research. There are a lot of great books out there which can guide you no matter your investment goal, style, or income. Be sure and look at Morningstar ratings and comments. Somewhere there is a fund, or funds that offer you every investment vehicle that currently exists, stocks, bonds, convertible bonds, options, hedges etc..
If you want to get rich fast, look elswhere, but if you want peace of mind, go with the best of breed - Vanguard.
GOOGLE WATCH - Jim Cramer predicts Google will be added to the S&P 500 soon. If that happens, all the S&P index funds will have to buy it.
posted by TandaPundit at 21.7.05
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