Mutual funds to become extinct??

By: ispeculatornew
Date posted: 01.22.2010 (5:00 am) | Write a Comment  (4 Comments)

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It’s no surprise to regular readers of this blog but I have a strong positive opinion about ETF’s and a strong negative one about mutual funds. And yes, I did write about why ETF’s are superior to mutual funds. Some would argue and some points are a bit tougher to debate but in general, I do not see how owning mutual funds and paying excessive fees for decades can be a good thing, I just don’t.

Will it really happen???

Having said that, I do know that mutual funds will resist their extinction. How??? Because they have an army of salesmen that want to keep them alive. You know those financial reps who get a portion of your annual fees? When you have a decent size book, those fees add up very quickly. Make your clients pay 1% more but get .50% of that more in commission? It’s a good deal to many.

Since most of the population does not have enough knowledge to challenge their financial planners or to manage their portfolio themselves, they generally do not even hear about the possible option.

Not all ETF’s are good, as I had written about when discussing things to look for in an ETF, but I’d say it’s not even close in most cases. And it looks like the money flows are now starting to reflect this. Take a look at the net flows into ETF’s and mutual funds. Three straight down months for mutual funds, that is quite impressive.

Any thoughts for you? I know that personally, I find this very encouraging. The other good sign is to have mutual fund companies starting to launch ETF’s. They are finally admitting that mutual funds with excessive fees are not the future and that they cannot build their business solely on mutual funds.

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4 Comments

  1. Comment by Catarina — January 22, 2010 @ 7:59 am

    kinda scary dinosaur!! brrrr!! Actually, I don’t want to comment on the picture, but more specifically on the graph.

    It’s quite obvious with this graph that there is a flow transfer from MFs to ETFs… We have to admit, ETFs are becoming more popular and still continuing to grow!!

  2. Comment by IS — January 25, 2010 @ 7:53 pm

    @Catarina – Scary was the objective so looks like it was a success!:) On a more serious note, I am very happy to see the tendancy and just hope it keeps up.

  3. Comment by Denny — January 30, 2010 @ 9:25 am

    What we really need is more individual ownership of stocks so that more no votes can be cast to excessive compensation and poor management. The exisiting 401K plans shoud be replaced with a simple IRA where investments can be made for a very low cost. The only reason you should put money into a 401K is if your employer is matching some part of it, otherwise take the money, payoff debt and then fund your IRA .

  4. Comment by IS — February 4, 2010 @ 9:09 am

    @Denny – A lot easier said than done. Most individual investors do not take the time to vote on most issues anyway. In my opinion, the best way to get changes done is through activism, very wealthy investors that want to shake up things.

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