Are Mutual Fund Returns REALLY What They Say?

You hear about this great mutual fund and you jump in.  In the first year it returns 100%, nice, very nice.  The second year isn't so good, down 50%.  The mutual fund then claims an average return of 25% which is technically true if you just do the math and average the two years.
However, if you were a shareholder for both of those years, your return is 0%.  Whatever you gained in the first year was wiped out in the second.  Its called CAGR which is compound annual growth rate which is the 'real' or annualized return.  
As an investor, you need to be wary of many things, only one of which is the 'return' a mutual fund or your stockbroker claims to have achieved.
Since 1990, the stock market (as judged by the S&P 500) returned 11.18% but a CAGR of 9.46%.  That is a massive difference and is one of the many reasons you never seem to do as well as your financial guy says :)


Bull Market Is Now Five Years Old, What Is Next?

The US bull market is now 5 years old.  That is a long time.  Probably few investors remember how terrible the markets where just five years ago.  There were people calling for the end of capitalism!  The old saying goes "buy when everyone else is fearful" couldn't be more true than it was March 9, 2009.

The current bull market may not be the longest in history but it is getting close.  You never know what will derail it, sometimes it is valuation, sometimes it is geopolitical and sometimes it takes just one small event to trigger selling.  I know this, with more hedge funds holding more assets, when real selling occurs, it will be swift.  You need to decide now what you might do.

My favorite of all wall street sayings is "professionals sell on the way up and amateurs wait for trouble and sell on the way down".  The psychology behind this is true.  I don't know when the bull market will end but check out the chart below and remember the terrible bear markets that took place after each!

If you utilize a financial guy, make sure you compare your brokerage account to history and if you didn't annualize over 19% a year over the last five years, then you are paying for nothing.

Don't expect your financial guy to sell anything now either for two reasons;
  • financial advisors only get paid for assets on the books, not cash
  • it's easier to be one of the crowd and ask for forgiveness when your account withers rather than risk being right
  • they are probably too busy 'selling' new people
bull markets data