Tony Robbins is a motivational speaker, self-help author and a life coach who works with a lot of high net-worth individuals. I guess some time ago, he started getting interested in financial literacy. He started asking his clients how they beat the market and doing a lot of research. After years of research, he came to some interesting conclusions that are in line with our viewpoints and support the case against mutual funds. I learned a lot from Anthony Robbins’ book “MONEY Master the Game” including what he calls the nine financial myths. Today I want to go over three of these 9 myths.
Myth #1 – “Invest with us. We’ll beat the market.”
An incredible ninety six percent of actively managed mutual funds fail to beat the market over any sustained period of time. That’s a pretty powerful number. That means basically, you have a four percent chance of picking the right mutual fund. If you go blackjack, you have a 4.8% chance of hitting blackjack– Roughly the same odds. Over a twenty year period, December 31, 1993 through December 31, 2013, [inaudible 00:04:37] turned an annual average of nine point two eight percent. The average mutual fund investor made just over two point five four percent.
Myth #2 – “Fees. They’re a small price to pay.”
As Senator Peter Fitzgerald said, ““The mutual fund industry is now the world’s largest skimming operation, a $7 trillion trough from which fund managers, brokers and other insiders are steadily siphoning off an excessive slice of the nation’s household, college and retirement savings.” As the mutual fund advisor, the most straight-forward way to explain this system to a client would be “You are going to give me your money to invest. You’re taking all the risk. I’m going to invest your money and if it goes up, great. You win and I win too. If it goes down, you lose but I still win.”
The average cost of owning a mutual fund is out is roughly 3% per year. According to the Securities and Exchange Commission, over a 20 year period, 1% in annual fees on a $100,000 portfolio, “reduce portfolio value by nearly $30,000.” These numbers speak for themselves and can make it really hard for investors to beat the market over time.
Myth #3 – “Our returns? What you see is what you get.”
Jack Bogle, founder of Vangaurd says, “Advertised returns are not always in line with actual returns investors will experience. This is because the returns you see in the brochure are known as time weighted returns. Time weighted returns assume that investors have all their money in the fund the entire year and don’t take withdrawals, but the reality is we typically make contributions throughout the year. We contribute more during the time of year where the fund is performing well and less when it’s not performing. We’re going to have a much different return than what was advised. Typically, if the fund advertises six percent return, the investor really achieves closer to three percent.