Comments on: Two Strikes against Active Management

By: The Definition of Moral Hazard and A Review of The Big Short | A Politics & Moral Psychology Blog

Thu, 02 Dec 2010 19:14:40 +0000

[...] and a few others." (p. 174) Dumb is perhaps too strong a word, but it seems self-evident that money managers are rewarded as if they are better at money management than they actually are. There is a psychological dimension to this. Both liberals and conservatives attribute their [...]

By: Annonymous

Annonymous — Tue, 11 Dec 2007 14:35:56 +0000

Jon,

It is interesting that you disclose your ownership of mutual funds. It is suprising that you do not own ETFs since you often write about them in your column and/or blog.

By: I’m A Personal Finance Blog Junkie - Plus A Quick Stroll Through My Blogroll

Sat, 08 Dec 2007 03:32:35 +0000

[...] Capitalist has an awesome article about actively managed mutual funds. Index ETFs [...]

By: Richard

Richard — Fri, 07 Dec 2007 18:04:33 +0000

It’s a bit funny to say

“Fans of actively managed funds will often defend the hefty management fees associated with mutual funds by saying that active management shines when markets turn volatile. That is when money-management expertise can steer dollars away from obviously overvalued, over-hyped sectors and into areas that should perform well.”

when you consider that the best way for a fund management company to get people’s money is to have a fund in an obviously overvalued, over-hyped sector. But I guess before the end of the internet bubble people just wanted to get in on tech stocks that weren’t over-hyped.

By: Weekly Dividend Investing Roundup - December 7, 2007 Edition » The Dividend Guy Blog

Fri, 07 Dec 2007 15:25:53 +0000

[...] about one of Canada’s leading financial journalists trying to defend the use of mutual funds. Canadian Capitalist reminded me about this debate. It is pretty clear from Investing Intelligently’s rebuttal [...]

By: Canadian Capitalist

Canadian Capitalist — Fri, 07 Dec 2007 00:24:51 +0000

Jon: Thanks for the clarification. I did mean you gave up writing but reading it again it didn’t come out too well.

For the record, I own one mutual fund: Leith Wheeler Canadian Equity. The reason is it is that it is one of the funds available through a Group RRSP at work and the index option I have is just a smidgen cheaper, so I opted to buy into a fund whose philosophy I could buy into. The fund MER is just 0.8% compared to 0.65% for the comparable index fund.

By: Dave from GP

Dave from GP — Thu, 06 Dec 2007 21:28:57 +0000

I guess they must buy into the sales pitch. My mother recently retired and had asked me what she should do with her money she had from sale of her home and her mother’s who had recently died. She knew I was looking after my own finances thru TD Waterhouse, so I told her all about setting up an account. Her risk tolerance was pretty low so we discussed laddering bonds or investing in bond funds etc. I told her about MER’s ,commisions to the “advisors” etc. Earlier this year she suddenly announced that she had given it all to a mutual fund company because that was who my brother deals with and it seemed easier. Plus the sales person was really nice. I didn’t really say anything but it was shortly after that that the markets began their long decline. They may be in for a shock. Oddly enough I was considering buying stock in the same company she has her money with!

By: Jon Chevreau

Jon Chevreau — Thu, 06 Dec 2007 20:33:51 +0000

Just to clarify, I gave up writing an annual mutual fund guide but didn’t give up on owning them personally altogether. The same blog entry mentioned I own (actually my wife) AGF Precious Metals Fund but I do own the Sprott PM Fund, Trimark Fund and a bunch of DFA funds too.

By: tyler rooney

tyler rooney — Thu, 06 Dec 2007 19:50:38 +0000

I think it’s also worth noting that just saying “mutual fund” doesn’t necessarily mean high management fees. You can go and open an account with Vanguard and get razor thin MER on their mutual funds.

I think the difference between the average person and people like us (those who read personal finance blogs) is quite large. I’m still surprised to hear how many people don’t use online banking and bill pay features. And if you’re in that category, you probably want a physical person to talk to about investing which usually mean going to your current bank. And most places with physical locations (like Fidelity or banks) aren’t going to hammer home the importance of keep fees low. Hell, I dare you to go on fidelty’s website and try to figure out what a new investor would do and if you’d have any confidence in your decision.

Buying ETFs is even more complicated for the average person. At least with mutual funds you can invest any amount of money (not a multiple of a stock price) and it’s easy to get a no-load fund. I think that’s why a company like Sharebuilder has a lot of potential (as it makes that process easier) and is probably why ING bought them.

By: MikeH

MikeH — Thu, 06 Dec 2007 18:41:21 +0000

Even for the more knowledgeable investor, I think psychology has a lot to do with choosing “active” mutual funds over indexed ones.

The rational part of my mind says:
“Keep fees low – index everything. You can’t do any better than the market as a whole.”

My ego says:
“Who just wants to do as well as everyone else (index)? That extra 2% off the top doesn’t matter if I can make 20%.”

That being said, my ego has lost me more money over the years than it’s made me.

BTW: I hold both index and active MFs. Reason and Ego fight constantly .