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Everyone from financial magazines to "financial planners" will recommend that you buy
funds that have good long term track records. I invite the reader to take this
challenge: Go back at least 5 years in time, and see how a portfolio of highly ranked
funds would have done if you had purchased them then.
funds can have widely varying performances, s/he decided to buy the best performing
funds for the past 10 years. Surely, this should lead to funds that are well managed
for long term success.
According to Barron's magazine, the following funds were the top performers for the
10 years ending December, 1994. Three of the top 13 funds can no longer be found,
having been absorbed by other funds. I am listing the 10 best of the top 13 that I can
find performance records for.
ending Dec. 2004
20th Century Giftrust 2.52%
Seligman Communications A 11.50%
Fidelity Select Health 13.77%
GAM International 4.81%
Vanguard Special Health 20.15%
AIM Constellation 8.01%
Fidelity Advisor Inst. Equity Growth 10.56%
CGM Capital Development 10.83%
Fidelity Overseas 6.61%
Merrill Lynch Pacific A 10.96%
Average Annual Return 9.97%
Vanguard S&P 500 Index Fund 12.00%
Please note that I am not including the commissions the investor would have had to
pay to buy several of these funds. The returns listed are the returns on net asset
value. If a commission had been paid, the returns would have been lower!
In this example, again, the investor would have been far better off investing in a simple
no-load S&P 500 index fund! The difference in money if $100,000 was invested? The
fund portfolio at no commission would net $258,668. The index fund would net
310,585. Nearly $52,000 more money!
My point here is that funds, for many reasons, are unlikely to beat an index fund over
the long run. Each of these funds had beat the S&P 500 index for the prior 10 years.
Most failed to beat it thereafter. How many of these funds were on the recommended
lists before 1985? How many are still on lists of top performers today?
Future performance cannot be predicted by past performance. And, because most, if
not all, funds under-perform the market in the long run, while taking more risk than the
market, the fund investor may do well to consider a different approach to investing.
A fund investor, index or otherwise, has less long-term control over his risk,
in my opinion, than if s/he builds a portfolio of individual stocks and manages
it correctly. And, the investor in individual stocks has far more upside
potential.
| ============================================== |
This is intended for educational purposes only. This should not be construed as a recommendation
to buy or sell any security. The information contained herein is not meant to constitute specific
investment advice. An investor should consult with Don A. Slabaugh (DAS), or his or her own
professional financial adviser (if not DAS), prior to acting on any of the information stated above.
to buy or sell any security. The information contained herein is not meant to constitute specific
investment advice. An investor should consult with Don A. Slabaugh (DAS), or his or her own
professional financial adviser (if not DAS), prior to acting on any of the information stated above.
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| email me at donslabaugh@yahoo.com |