According to Dalbar, the average equity mutual fund investor earned less than inflation over the past 19 years. Fear and greed lead many investors in the chase for returns. Let's take a look at the numbers.
According to the Dalbar study going back to 1984:
- The average investor earned: 2.7% a year
- Inflation grew 3.14% a year
- The S&P 500 earned 12.22% a year
If we take their word for it, this makes a very strong case for index investing. Taming investing emotions can be difficult, but it is important - even in active trading.
As I guessed in "The Death of Cold Calling" entry, the DoNotCall.gov website was swarmed with over 28 million phone number entries less than one month. "Federal Do Not Call Registry" continues to be one of the top search engine terms. How will this affect brokers who cold call to make a living?
Cold callers will still have their prey, though the pickings are getting slimmer.
I remember my Grandma telling me about a broker who called her and talked her into dropping a few hundred dollars into some penny stocks. Chances are, she doesn't know about the DoNotCall.gov site or phone number (as a make a mental note to tell her).
One possible loophole is that cold callers are allowed to call you if you have an established relationship within the last 18 months (though you can tell them to never call you again). If you make an inquiry to a company or submit an application to it, the company can call you for up to 3 months. I wouldn't be surprised to see more brokerage firms get involved in offering sweepstakes and other gimmicks just for the opportunity to call you. The good news is that you are protected from overseas calls as well.
Cold callers may find a different way to find customers (door-to-door, mail, email, the grocery store line), but their days are numbered. Online brokers should be big supporters of this government service.
02:10 PM#
The Market's Reaction to New Information
The market responded favorably to the unexpected decline in jobless claims data. There's no doubt that economic indicators play a major role in short term market fluctuations. Economics Guide, Mike Moffatt, explores the relationship between information and prices in "How Markets Use Information To Set Prices."
01:35 PM#
CFP Board's CEO Suddenly Resigns
According to Financial Planning Interactive, Louis Garday gave the CFP Board two weeks notice upon returning from his honeymoon. To top it off, he is using the balance of his vacation time during those two weeks. Why would he leave so suddenly?
Is it the new wife? Probably not. It appears he is leaving to pursue opportunities in the for-profit sector.
Okay, I should have put money on my prediction that David Glancy left Fidelity to start a hedge fund. On Thursday, the Wall Street Journal reports that he did leave for this very reason and two more Fidelity fund managers have left for the same reason. Hedge funds provide managers with a huge opportunity to make lots of money, plus they don't face the same regulations that mutual funds do.
Strange times we are in. Alan Greenspan says he is ready to cut interest rates again, if need be. One economic indicator that has been baffling Greenspan is the unemployment rate. Perhaps July will be a better month. It may be a while, but what will happen to mortgage companies and the housing market once rates go back up again?
09:21 PM#
Morgan Stanley Mutual Fund Probing
Morgan Stanley has the SEC, NASD, NY Attorney General and the Massachusetts State Regulators on their tail for their mutual fund practices. What exactly happened isn't public yet, but one thing is for sure: regulators are jockeying for position. There is a congressional bill, Securities Fraud Deterrence and Investor Restitution Act, under consideration which would expand the SEC's enforcement powers.
10:41 AM#
Mutual Fund Industry Under Fire
John Bogle has been receiving a lot of attention from journalists lately on the evils of the mutual fund industry. He is absolutely right that some practices are uncalled for, but we must also realize that his remarks have the hidden agenda of pointing out how good index funds are (this is how he makes a living). Expect a retaliation from managed fund advocates over the next few days using bear market data as their choice of weapon.
05:05 PM#
Big Changes at Safeco Funds
I always keep an eye on Safeco Funds - not by choice though. Their corporate headquarters happen to be across the water from the view in my workspace. Safeco Funds announced big changes in their mutual funds including new names for 7 of their funds, a change in the way they manager their funds (they will now use a co-managed system), liquidation of two unpopular funds and a reduction in some of their mutual fund fees.
I still think their funds are a bit expensive, but the name changes seem to be an improvement in establishing the type of mutual funds they intend to be.
04:40 PM#
As mentioned in an earlier post, retirement plan participants are putting 42% of their money in their own company's stock. Obviously, people don't realize how dangerous it can be to own their company's stock. You'd think all the recent scandals and company failures would be enough warning.
09:57 PM#
Not a Free Lunch
Forget the buffet, try out Buffett for lunch. It may cost you over $25,000 to win a lunch with Warren Buffett, the 2nd wealthiest man, in an online Ebay auction. Reuters reports that Warren will be having lunch with the winner and seven friends to raise money for the Glide Foundation. You can keep track of the winning bids with this link. The auction ends Thursday night.
07:05 PM#
401(k) Participation Dropping
The Washington Post reports that participation in 401(k) plans has dropped to 68.2 percent of eligible workers. This is bad news. As outlined in my article titled "Maximize 401(k) Matching", taking advantage of 401(k) matching may be the best investment you ever make.
This article also reports that employees put about 42% of their 401(k) investments in their company stock! Looks like I need to write an article about proper asset allocation.
04:38 PM#
As I guessed in "
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