How Mutual Funds Cover a Multitude of Sins

How many times has this happened to you (or someone you know)?

You hear someone’s compelling reasons (i.e. Money Magazines #1 Mutual fund pick for this year etc.) and you buy that mutual fund.

Before you know it, your #1 fund choice has changed its name.

Wait! What?

That’s right.  Your fund has either merged with another fund or has been acquired by another mutual fund provider.

On the surface they make it seem like it’s complimentary to the fund’s performance.  However, behind the scenes it’s a way of covering a multitude of sins.

Follow the sequence:

• Money Magazine awards your fund its #1 rating* (*Note, statistics prove that over 95% of MM’s #1 picks never repeat).
• The industry hype makes the “Guru” manager into one of the most sought-after managers.
• Alleged “Guru” sells out to the highest bidder and moves to another mutual fund family.
• Your #1 fund fails miserably under new management causing many investors to chase after the next #1 Fund.
• To your surprise you get a notice that your #1 Fund has “recognized an opportunity” (in your best interests, of course) and has named Joe Blow as the new fund manager.

Meanwhile, you’re stuck with the losses caused mostly by management changes that you had no control over.

Adding insult to injury, the “Newly Named/Merged Fund” very quietly makes the bad performance numbers disappear by merging the results within the track record of the new fund family.

Sad to say this happens more often than you think.

This is why we hate most mutual funds, ETF’s etc.  (Read: Another reason to hate mutual funds)

Learn about the best alternatives to mutual funds/ETF’s in our Short and Sweet Tips column (HERE).

And share this with a friend…They’ll thank YOU later.