You May Be an Index Investor and Not Know
NEW BERLIN, Ill. (TheStreet) -- For those of you using actively managed mutual funds, I imagine one of the primary reasons is because you believe active management produces superior results. After all, these fund managers are smart guys and gals who spend their careers analyzing and picking stocks for their accounts. How can they not achieve superior returns?
Well, in practice, these superior returns don't occur as often as you hope. Too often (especially after a short stint in the limelight) the fund manager gets caught up in the short-term incentives so pervasive in our industry and avoids risky behavior. The incentive programs are typically geared toward meeting or beating the "average" -- generally defined as the applicable index. With that kind of incentive, the fund manager has a tendency to devolve any innovative processes and risky actions into following the index rather closely.
|Funds promising large returns for your retirement are often no more than part of a classic investment firm shell game.|
This doesn't happen to every fund, but probably to more than you think. Look at the life cycle of an active fund a bit more closely to understand what happens.
Under the covers
Mutual fund companies introduce lots of funds every year. As an example, let's say a fund company introduces 10, each with a fair-haired boy or girl managing it and doing his or her best to produce a superior return. Since these funds haven't been marketed to the public, the fund company often puts in some of their own money; called "incubation," this is a way for a fledgling fund to build a track record before investing a lot of money in marketing.
Select the service that is right for you!COMPARE ALL SERVICES
Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.
- $2.5+ million portfolio
- Large-cap and dividend focus
- Intraday trade alerts from Cramer
- Weekly roundups
Access the tool that DOMINATES the Russell 2000 and the S&P 500.
- Buy, hold, or sell recommendations for over 4,300 stocks
- Unlimited research reports on your favorite stocks
- A custom stock screener
- Upgrade/downgrade alerts
Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.
- Diversified model portfolio of dividend stocks
- Alerts when market news affect the portfolio
- Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.
- Real Money + Doug Kass + 15 more Wall Street Pros
- Intraday commentary & news
- Ultra-actionable trading ideas
Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.
- 100+ monthly options trading ideas
- Actionable options commentary & news
- Real-time trading community
- Options TV