2″We can’t beat the market.”
For baseball players, batting .300 has always been a magical goal. For mutual-fund managers, it’s “beating the market.” That means when the Standard & Poor’s 500-stock index is up 10%, they are up 11%. If not for the drag put on returns by investment costs, blind luck alone would guarantee that roughly half of funds would beat the market in any given year.
But only about one in three mutual funds beats its target over the past five years, financial-data firm Morningstar reports. And many academics who’ve studied mutual-fund returns say shopping around for market-beating mutual funds is typically a waste of time.
3″When skill fails, we just double our odds.”
Imagine a school with more teachers than students, or a restaurant with more chefs de cuisine than place settings. That’s something akin to the situation in the mutual-fund world.
There are just under 5,000 stocks listed on major U.S. exchanges. By contrast, there are more than 8,500 mutual funds and exchange-traded funds, by Morningstar’s count.
Some say that large number of funds will inevitably lead to lower prices, but others offer a more skeptical take: A bigger roster of funds boosts the odds that at any given moment, one or two will be handily beating the market, says independent consultant Geoff Bobroff.
The Wall Street bullies want you to believe that they can pick the winners. There is overwhelming evidence that these are false prophets. The Wall Street bullies do not have your best interest in mind. Don’t empower Wall Street, hire a coach and succeed.
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