Warning: Irony Alert
This is yet another in our seemingly never-ending series of posts pointing to the failure of the mutual fund industry to deliver real gains for us individual investors. In this latest installment, we uncover the sweet irony that we would be better off buying the stocks of the mutual companies themselves rather than investing in their under-performing products. Oh snap.
To be clear, the business of selling and managing mutual funds IS lucrative. For them. The mutual companies. Who are enjoying the benefits of a money-making machine equivalent in its awe-inspiring faculty to generate profits to Coke’s syrup, Hewlett-Packard’s ink (it’s more profitable than oil or blood or penicillin), and Google Ad Words (genius).
From a recent article by Barry Rehfeld in the New York Times:
INVESTORS in the market for mutual funds may want to consider a promising
alternative: shares of asset management companies that sell the funds. Over the
long run, after all, these companies have produced much better returns than
mutual funds over all….They collect fees on assets under management, and, with some exceptions, the
fees generally increase in proportion to asset growth. Among larger firms, an
economy of scale funnels much of the increase in fees directly to the firms’
bottom line. This makes for a very profitable corner of the financial services
world, especially in a rising market.
Mutual funds are a wildly profitable financial service that do not deliver the promised results to its customers. Seems like there is a big opportunity for a new class of investing products to emerge that matches the performance of its benchmark and costs far less money. Oh, yeah, they already exist.
Cake’s mission is to similarly provide an alternative to existing options and help individuals invest better, smarter, with more actionable information. Give it a try and let us know how we do.
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Posted by: Steve Carpenter
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