Instead of eating up your brains, they devour your nest egg with high expenses and walking dead performance. They may be lurking within your 401(k)-type plan or individual retirement account.
I like index funds because they generally can track nearly any kind of asset class. As such, they are the white bread of investing and should cost about the same from fund to fund. The cheaper the better. Why pay Nieman-Marcus prices for the same thing you can get at Costco or Sam’s Club for less?
You can vanquish these funds without overtly violent acts, but first you have to identify them. Unfortunately, mandated fee disclosure is still pending, so you have to take the initiative.
So how do you identify a zombie fund? First you need a reliable benchmark for comparison purposes. The easiest way is to look at the index that the fund is supposed to be tracking. A good proxy for the U.S. bond market, for example, is the Barclays Capital Aggregate Bond Index. It’s a basket of listed bonds. If a fund tracks the index return within 0.20 percentage points or less, then that’s pretty good and not expensive.
For many, this is an obvious no brainer, but it involves much more than simply shifting into cash, bonds or gold. What if you don’t want to exit stocks entirely? Then you may need what money managers call tactical asset allocation.
When an equity mutual fund receives Lipper’s highest rating of five for consistently superior, risk-adjusted three-year performance — along with other funds in the top 20 percent of its category—it may catch your attention.
When it gets that five rating consistently for 21 months — a record that Lipper’s research services head, Tom Roseen, calls “rare and worth a look” — you may be ready to plunk down some money.
The following is a guest post by Lawrence Carrel, author of “ETFs for the Long Run” and “Dividend Stocks for Dummies.” The opinions expressed are his own.
The following is a guest post by Juliette Fairley. A frequent contributor to USA Today, Investor’s Business Daily, Bloomberg Wealth Manager and The New York Times, she is also the author of three personal finance and investing books. The opinions expressed are her own.
With the markets so volatile, financial advisers are screaming “diversify” from the rooftops. One small corner of the market that might attract attention in down times: hedged mutual funds.
The people whose job it is to protect shareholders’ investments in mutual funds nowadays — members of fund boards of directors — not only may be called on to do more things than any time since the Investment Company Act of 1940 created their positions; but they also have more power than ever before when dealing with the managements whom they oversee.
That is especially true for independent directors, who have been required to hold a majority of all funds’ board seats since 2002 and who are increasingly assigned additional responsibilities, most recently resulting from the mutual fund insider scandals revealed in 2003 and the 2007-2008 financial crisis.
In the late 1990s, the Asian currency crisis and Russia’s massive debt default crushed bonds issued in emerging markets in Asia, Europe and Latin America. Just three years ago, emerging market bonds tumbled as investors ran from anything that smelled of risk.
Now, as debt woes envelop the U.S. and Europe, economies in many developing countries continue to chug along at a healthy clip. And investors, drawn by strong returns and high yields on emerging market bond funds, have put a fledgling asset class on the map.
The industry insists that they are and banking regulators aren’t calling in the National Guard, although the U.S. Treasury Department is considering some emergency measures in case of a U.S. debt default.
Yet with the U.S. default risk hissing like a cobra, Congress and the White House at loggerheads and all the bad debt sloshing around Europe, is there a reason to be concerned?
In baseball, good hitters don’t chase pitches in the dirt. They wait to swing on a ball in their sweetspot — that small space over the plate at which they can maximize the power and accuracy of their bat. Good hitters are patient and make a point to play to their strengths.
Despite inflation worries, corporate accounting irregularities and drab stock market returns, China’s growth story continues to attract love from Wall Street.
More than 600 mutual funds and exchange-traded funds and nearly 300 companies listed on U.S. exchanges use “China” in their names, writes emerging markets investment specialist Carl Delfeld for Investment U, an investment advisory website. Many of the latter are China-based companies listed as American Depository Receipts.