Mutual Fund's Ridiculous Disclosure to Investors

Investors,
  
  Attached below is an intriguing and quite amusing article that quotes a mutual fund's (IPS Millennium Fund) final disclosure letter to investors, near the peak of the internet bubble in the early 2000's. For those of you who don't know what happened in the early 2000s to the stock market, basically investors poured their money into internet start up companies in the 1990s, hoping that these new advanced technological companies would one day become profitable. High-tech companies with actual earnings were driving the technology sector (Intel, Cisco, Oracle, etc), but it was the upstart dotcom companies that created a massive stock market rally beginning in 1995 based on pure speculation. Nobody really knew what was going on with the internet or what it even was at the time, but everyone wanted a piece of it, which caused incredible overvaluations of dotcom companies who couldn't keep up according to their actual earnings. And over time, this overvaluation was simply unsustainable. The bubble bursted.

  Keep that in mind while you read the article below. Basically, the Mutual Fund Manager is hilariously blunt to all of his investors, stating that they shouldn't come crying back to him if the fund loses money day in and day out. In that part, I agree with the Fund Manager. You shouldn't be worried about the daily hiccups in the market if you're a long term investor. Too often, people check their daily ups and downs to see how their invested money is doing, yet what does that do besides stress you out if you aren't seeing green? If you're plan is to invest longer than a year's time, that shouldn't matter to you anyways. As I've stressed in the past, actively traded mutual funds, like IPS Millennium Fund, try to outperform the market through their "expertise" and rack up anywhere from 2-4% in fees per year. Therefore, if the fund actually earns a return of 8% in a given year, yet they make 3% in fees, you actually only make 5%. Avoid fees, they can destroy your future potential wealth down the line. On the otherhand, index funds, such as Vanguard 500 Index Fund (VFINX) simply tracks the S&P500 and purchases all of the stocks within the index. Therefore, they don't rack up trading fees, and expenses and fees come down to something extremely low like .15%. Something to keep in mind, from 1993-2013, the S&P 500 index returned an average annual return of 9.28%. The average mutual fund investor made just over 2.54%, AN 80% DIFFERENCE!

  I hope you enjoy the article, as one can imagine, the actively traded mutual fund IPS Millenium Fund, went out of business shortly after when the internet bubble burst and their stock picking "expertise" couldn't keep pace with the market. Incredibly accurate point of view from the mutual fund investor, getting queries from their clients about why their money is down one day and up the next!

In other news, Federal Reserve raised interest rates to 1 percentage point today, more on what that means another time. Peace!

Max Maudsley

http://jasonzweig.com/best-mutual-fund-disclosure-ever-dont-come-crying-to-us-if-we-lose-all-your-money/