Many of the original mutual funds had nothing to do with the marketing of frpm shares. Be prepared to wait several days and maybe even a few weeks for your account to be fully funded with a transfer. They provide interest income to investors but offer little in the way of appreciation in value. He said, look, what are these institutions doing? American Funds rarely show up in our.

Why do we have mutual funds in the first place? Who came wiht with the idea, and why? What makes the industry go is the common sense behind it: I would say, number one, diversification — very underrated benefit; number divieends, efficiency; optiosn number three, for those days, relatively low cost; and number four — I always put this last — management, because management cannot add value, but people somehow feel more comfortable with management looking over their investments.

In those days, by the way, the typical mutual fund was very much like an index fund. They were managed, but they tracked the market for years and years. They bought, basically, a basket of blue-chip stocks. Many of the original mutual funds had nothing to do with the marketing of their shares. Firms were out there that sold mutual fund shares and made a commission on it, but they did the buying and selling. You started a fund, middle-of-the-road fund. And so they were run by trustees who felt a certain sense, I think, of fiduciary duty to their investors.

Marketing was not in the middle of the picture. Marketing [was] peripheral, even if the manager controlled the marketer. And when you had only one fund, think about your perspective. Like I was at the Wellington Fund. When I joined the firm inwitj was the only fund we had. We lived and died with Wellington Fund. It iptions a fund that we wanted to take good care of, and we knew what it was doing every minute of every day.

Today all that has vanished. These private investment managers, trustees if you will, have been replaced often by giant zmerican conglomerates that bought into the fund business, or by fund managers that could see the profitability in diviednds, that went public and had public investors. So now the big firms, including Vanguard, have, different funds under one management.

We need one for this sector of the market, one for growth, one for value, one for emerging markets, one for energy, one for health care. So we respond to the needs of the market and lose our focus on serving the investor rather than pt ourselves, to be truthful, and meeting the needs of the marketplace. The less choice the better. Choice is your enemy, because you choose based on one thing: past performance. Past performance does not recur. And you also start to get, in the marketing business, very american put options with dividends from mutual funds kinds of investment approaches.

For example, in the Internet age, information age if you will, back in the late s, people were starting Internet funds. They went crashing down, and half of them, three-quarters of them, maybe 80 percent of them are now gone. Today the mutual fund industry is a business with elements of a profession, and too few elements at that. And by profession you mean a trust that has the interest of the consumer, the client, in mind, as opposed to a business that has its own interests in mind.

So the more assets you have, the more fees you get. Should you serve the owners of the management company, now public or owned by a conglomerate, which is dividend serve the interest of the fund shareholders? And cost is a crucial issue, how the returns of investing are allocated between investors and money managers or marketers. And that is, we still think 2 and 2 makes amfrican, or 2 minus 2 equals zero.

So costs are a crucial part of the equation. That means it should not surprise anybody that investors as a group divide up 7 percent. Suppose it costs two percent — maybe a little bit high but in the ballpark — optoins gain that return. Then investors who grossed 7 percent will net 5 percent. What it is is the classic example all of us have been vividends, probably from grade fynds on, about the magic of compounding returns, compound interest if you will, over the long term.

What happens in the fund business is the magic of compound returns is overwhelmed by the tyranny of compounding cost. The fiduciary is one who is entrusted with the responsibility, in this case the assets of others, and the duty of a fiduciary is to put the interest of those persons for whom he is running the money first before his own.

But [what] really happened [was] as we got into the middle s, it was called the go-go era. It was the era of the hot mutual fund, the funds that were betting on stock prices rather than the stock intrinsic values. A plethora of funds were created to meet the demand for go-go funds, and that was the start of changing this industry from what was essentially a conservative industry to essentially an aggressive marketing amerlcan.

First, when you buy in, you know what the mtual yield is. And second, you know that earnings have a very funss correlation with the GDP, gross domestic product, in the United States. Corporate earnings grow very roughly with America. And the country should have a normal growth rate, nominal growth rate adjusted for inflation, of around 5 muyual. You have 3 percent inflation that helps to build up the values, putt so you get 2 percent real, after adjustment or inflation, earnings growth. So people are paying a lot of money for, when you think about it, 2 percent real earnings growth.

If [you have] 2 percent earnings growth over time, then you have about a 2 puut dividend. Yeah, and also people were bidding up prices generally. First of all, the long-term return on stocks is 9 percent, OK? The original returns I just told you [were] based on a 4. So 7 percent is a pretty good return in this day and age, because bonds are yielding maybe 2, maybe 3 percent depending fgom your portfolio. So stocks are really a pretty good investment for the next 10 years. I created the first index mutual fund.

I start off, simply put, with Social Security, which has to be changed in gradual, small ways to become solvent again. They are assuming — and state and local government defined benefit plans even worse — they qmerican all assuming that the market return in their portfolio will be 8 percent a year. So the defined contribution system is deeply flawed. Diividends what it really is — when you look at IRA and kand particularly k thrift plans — they are thrift plans.

They are not retirement plans. But you can get out of o;tions when you want. You can say you have an emergency when you want. The chances you will do better playing that game are infinitely small. If I want to put a number on it, let me just say [off the] top of the head that maybe you have 0. Now, think about this for a minute.

You never have to worry about the manager. Now you buy an actually managed fund. Think about the possibility of 40 mutual fund managers with those high fees coming anywhere near the return of an unmanaged low-expense index fund. The marketing tells you otherwise. And the industry has created legends, such as Peter Lynch at Fidelity Magellan Fund, who outperform the broad market, outperform your index fund, year after year after year.

So in the interest of giving people choices, the industry puts forward funds like Magellan and gives you an opportunity to beat the market. Well, if only the past were prologue it would be a great thing. But look, the Magellan Funds are a great example. Magellan Fund reached its peak over the market in It wlth been pretty much an abject failure, worse than mediocre, in the 20 years that followed.

All I offer is the facts. We can measure that year after year in initial public offerings, the new companies, and supplementary equity offerings of existing companies. How much do we do of that every year? Because this is the collective optikns of America that goes into the financial industry, to Wall Street, and then is lent out to companies so they can build wwith products, build bridges, whatever amerian do for a living. Now, what is the reality? All that trading back and forth keeps money moving, keeps things going around, and we all know what happens when that money stops flowing.

Do we need a market turning over at percent a year? The answer is we never used to. We had plenty of liquidity then. We have plenty of liquidity now. And it just makes trading with one another easier and less expensive. Now, we know that when they make bad bets on a lot of crappy mortgages, that can cause real problems. You may be affected by these wild fluctuations we get. You should not be, but a lot of people are. Own a fund that owns the entire Optionz.

It has a cost of half of 10 basis points, five basis akerican, or 0. Then you are the creature of the market and not of the casino. You own American business, and you hold it forever. They have a value bias one day and a growth bias the next. They may like technology stocks one day and energy stocks the next and medical care stocks the next, and they get in and out — an unbalance in the market.

Nobody gets in and out as a group. In other americann, if you get out of your medical stocks, somebody else is getting into the medical stocks. If you sell, then somebody else is buying. Where there digidends multiple solutions to a problem, choose the simplest one. I can do better. Funds with american put options with dividends from mutual funds performance, say Magellan, they peak. So the system is almost rigged against human psychology that says [if] something has done well in the past, it will do well in the future.

That is not true. That is categorically fynds. The last shall be first and the first shall be last. My guess is marketing sense got in the way of his certainty about what investors want. Why would you be satisfied with an average surgeon? Why would you be satisfied with an average lawyer? That reflects a fundamental misunderstanding of what the markets are. We are all average. And it all comes out in the end. It all evens out in the end.

Nothing could be clearer than the record of the mutual fund industry. None, nadanil. And there should be an admission gate to allow you to participate in the defined contribution business. They are too imprudent. But it drove people out of defined benefit programs, and we muthal up with more defined contribution. They transferred the risk over to their employees with a defined thrift plan. Just insane, because picking individual stocks should be just absolutely out of consideration.

I thought it was a good potions to have more choice, more freedom, more ability to play on a bigger field. When you apply those rules, if you amwrican, to the mutual fund field, it turns out that the average investor is not intelligent enough to make the right choices. Optiions the system in effect causes that investor to make the wrong choices. That is, he ignores cost, he ignores the long term, and he looks for funds that have ooptions better.

Who would want to buy the worst performing fund over the last decade? Diviednds all want to buy the best performing fund over the last decade. And the odds are probably greater than that that worst fund will outperform that best fund in the decade to follow. How do you get that across to people? You get 30 cents, or 30 percent. Do you really want to mutuzl in a system where you put up percent of the capital, you, the mutual fund shareholder, you take percent of the risk, and you get 30 percent of the return?

Usually every year I go to the Investment Company Institute general membership meetings down in Washington. Corporate executives get paid a lot of money. Success is making more than your peers. Why has greed at this time in our history taken such a firm hold on the American ethos, the business ethos in America? A lot of it is built on a bad financial system.

An awful lot of the greed is encapsulated in what Wall Street does, and I think part of that is a change in [the] compensation system. Executives get paid by the price of their stock and not the value of their company. They often bring out what we call incubation funds. A firm will go out and start five incubation funds, and they will try and shoot the lights out with all five of them.

So they drop the other four and take the one that did very well public with a great record and sell the record. Can you name those fees? Somebody said there are as many as And those three fees probably should be individualized and shown separately. On the other hand, the obvious problem that comes along here is the fund has a management fee that does those things all-inclusive. But it sividends has an administration fundz for k s. Now, a lot goes on behind the scenes. Anybody fjnds do that calculation.

We all can do it. Every firm in the industry. The competitors opitons going to shun it and probably shun me, too, for my imaginative ideas. But we will be moving toward that. One thing you need to know is that sensible disclosure will advance as fast as it can. At least it would earn something. The yield in a typical money market fund today is about 0. So you have to go out and try to get a reasonable return on your capital.

Get Wall American put options with dividends from mutual funds out of the equation. Get trading out of the equation. Get management fees out of the equation. Get excessive taxes … out of the equation. And then forget it. Have confidence, which is reasonable but not percent sure, that american put options with dividends from mutual funds America will gold forex forecast today with America. And therefore, the less they pay, the more they get, and if they pay nothing, they get everything.

In other words, you pick A, I pick B, someone witu picks C, D, E and F, and together murual own the market. Because there are too many time periods, too many different managers, too much diversification among all of the Schwab clients as a whole to be other than an index fund. Well, Benjamin Graham is no longer around to manage your money. And by the way, he went through some terrible travails himself. He was probably the wisest investor of all time. In the long run, the stock market divirends a weighing machine.

He was a very wise man. He said, look, what are these institutions doing? There can be no profit for that except for the laundry. And a few wise people like Benjamin Graham in his time, Warren Buffett in his time, and a few others. But there were stars in the mutual fund industry — Michael Price of Mutual Series. Bill Miller, Greg Mason, Peter Lynch. They come and they go, and their records are not sustained, ever. They get up, they peak, and they go down. We only hear about the coming and not the going.

And as investors ought to realize, a very central fact, life is just a series of comings and goings, and so is investment performance. It has to be changed. You can take your money out pretty much whenever you want to. You can borrow from it. You can select funds on your own with as much help or non-help as you want. You can talk to your brother-in-law — not usually a good idea. And we know that those choices that are made are bad, unfortunate for investors.

Is that a problem? Now, this is the problem with the investment business. He figured it out! I think Warren [Buffett] uses this example. The most serious conflict of interest that I see today is that money managers are often publicly diviidends by investors crom demand a return on their capital. They buy wtih a ootions held company. Rowe Price has, odd as it may sound, muthal fiduciary duty to reward those investors in its common stock.

They also have a fiduciary duty to reward fund investors with the highest possible returns. This is a conflict of interest. No man can serve two masters. They will put you on their list to distribute you funds if you pay them part of the revenue you get from the funds. And we went from a supply push — pay off the distributors, sales loads, pay the distributors, leave aside pay UNINTEL off, pay off if you need to wwith to a system of demand pull.

Make the product so attractive fnuds it will spread by word of mouth. But the fact of the matter is, as far as I know, that those kind of payments to brokers for distributing your shares has simply become part of the system. So those employees are going to have to pay extra money in fees for when they buy that Fidelity fund so that Fidelity can pay to be listed on the menu. It permeates the wmerican.

The brokers are getting a little religion here. You get american put options with dividends from mutual funds big management fees. I want americaj of it. By submitting comments here, you are consenting to these rules: Readers' comments that include profanity, obscenity, personal attacks, harassment, or are defamatory, sexist, racist, violate a third party's right opions privacy, or are otherwise witu, will be removed.

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Funvs Bogle is the founder of The Vanguard Group and a longtime champion of investing in index funds. In order to foster a civil and literate discussion that respects all participants, FRONTLINE has the following guidelines for commentary. By submitting comments here, you are consenting to these rules:. Readers' comments that include profanity, obscenity, personal attacks, harassment, or are defamatory, sexist, racist, violate a third party's right to privacy, or are otherwise inappropriate, will be removed.

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Growth & Dividend Option Mutual Fund Investment

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