Most Investors Fish in the Wrong Pond
By Peter C. Thoms, CFA
Most individual investors are fishing in the wrong pond when it comes to investing for retirement. This pond is the pond of actively managed mutual funds.
Given the trillions of dollars still invested in active mutual funds, many investors apparently believe that their funds, collectively, will outperform the funds’ respective passive benchmarks. This is unlikely to happen, and the more time that passes, the more unlikely it is to happen. As a former analyst and co-portfolio manager at a well-known (active!) mutual fund company, I have seen first hand why active funds are mostly a losing proposition for investors.
In a nutshell, it is the collective cost of excessive trading, marketing fees, management fees and unnecessary taxes that all combine to weigh down the returns for active funds. In addition to these burdens, portfolio managers often find themselves overexposed to the wrong sector or securities as the markets move ahead. And it can be pretty hard to catch up without taking substantial risks
Investors can put themselves on the road to a bigger retirement nest egg by focusing their portfolios on highly diversified, low-fee, low-turnover funds that seek diversified and highly-efficient exposure to the asset classes that are appropriate for their risk tolerance and financial circumstances. Funds offered by Dimensional Fund Advisors (DFA), Vanguard, iShares and SPDRs tend to be particularly good choices.
We have chosen to build our Orion Portfolios exclusively with funds from Dimensional Fund Advisors, as we believe that Dimensional offers the best value proposition in the fund industry. Dimensional funds, however, are only available through investment firms that have been specifically approved by Dimensional. The firm’s funds feature very low fees coupled with very low turnover and a high degree of diversification. Dimensional’s investment approach is underpinned by Nobel Prize-winning financial research; the firm’s strategies target the types of securitiesnamely value and small-cap stocksthat have historically delivered higher returns than the broad market. Dimensional has established a 30-plus year track record of outstanding results across a broad array of asset classes.
For those who would like an in-depth report on the active mutual fund industry, please use the link below to request a copy of The Mutual Fund Landscape. This e-book makes for sobering reading.
Request Mutual Fund Landscape 2014
As always, feel free to contact us regarding any investment matters.
Peter C. Thoms, CFA
Orion Capital Management LLC
1330 Orange Ave. Suite 302
Coronado, CA 92118
Tel: 619.435.1701
