MUTUAL FUND FALLOUT
Most people who have been haphazardly investing in mutual funds are already aware of this, but I am going to remind you again. 90% of stock mutual funds reported negative returns in 2002, this according to Weiss Ratings. This is the third consecutive year that investors have suffered declines in stock funds.
The Scorecard
-19.22% 2002
-12.5% 2001
-4.45% 2000
Technology funds continued to destroy investors with 99.3% of the funds reporting negative returns compared to 98.6% in 2001 and 99.4% in 2000. Investors have lost a staggering 40.25% on tech funds last year compared to losses of 35.6% and 29% in 2001 and 2000.
Fidelity Investments’ Magellan fund, which was once the worlds largest has now emaciated to a 5-½ year low in terms of assets. Last year Magellan posted a loss of 24%. In 2001 the loss was 12%. Here is some information the fund companies never tell you, the more money you have to invest, the harder it gets to beat the market. Large block trading pushes up the price of stocks you are buying while depressing prices on stocks you sell. A statistical analysis of fund size and performance by Boston-based Financial Research Corp. found small funds beat large ones 80% of the time. Putnam Investments, another mutual fund giant posted annual losses of 70% of its funds last year. Their dismal performance occurred even after Putnam shut down 1/6th of its funds for appalling performance.
A class action lawsuit commenced on behalf of persons who suffered damages as a result of their acquisition of shares from the Alliance Premier Growth Fund. The complaint alleges that defendants violated the federal securities laws by disseminating false and misleading registration statements and prospectuses pursuant to the shares of the Fund, which were issued to the public. While the Fund stated that its investments were based on extensive research and in-depth understanding of the business fundamentals of investment companies, the complaint alleges, among other things, that the Fund’s investments in Enron Corp. were not based on these criteria. Ultimately, the Fund lost over $700 million in its investments in Enron.
It still strikes me funny when I get e-mail and letters from investors who still believe that the tech sector is going to magically spring back to life to save their portfolio and their retirement. It truly is amazing that investors are still hoping and praying that their “Funds of Death” will roar back to life. Once again, I am terribly sorry to inform you that scenario is just not in the cards. Snap out of it! It is time to pull yourself up by the bootstraps and get on with it. Stop sitting on losers. Your situation is not hopeless. You do have a choice; you can repair your portfolio. However, the longer you wait the direr your situation becomes. You can either continue to hold these cancerous positions in your so-called portfolio or you can get your financial plan done and start doing things the right way. The definition of a real dummy is doing the same thing over and over and expecting a different result. Don’t be a dummy!
