Fund Managers Uncovered, Part 4 of 4 | Sensible Investing

This final part looks at how the investment industry demands of active fund managers don’t match what the role of the industry should be. The financial system should also change from the current short term focus to a long term focus.

Finally, this final part ends where Part 1 began – “Is it skill? Or is it luck?”

The irony of how the markets function is that the passive investors need the active investors for all markets to work properly. If nobody trades, the markets stop (prices won’t change if nobody buys or sells). Active investors often underperform the markets through fees and poor timing (buy high, sell low) demonstrated through numerous Dalbar studies.

A point not mentioned in this series: you may shoot the lights out through market returns meeting or exceeding expectations, and still not reach your goal! How? By under-saving (relying on the market returns to do all the heavy lifting instead of continuing to add the money that will increase the principal amount upon which earnings grow (the more the principal, the more the earnings, given the same return). For some reason, people tend to forget this basic principle (market returns vs saving more).

 Video blog: Fund Managers Uncovered, part four – Sensible Investing.

PS. I’m not a “fund manager,” I’m a Certified Financial Planner managing client expectations towards their goals with their money. This four part series talks about those expectations.

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One Response to Fund Managers Uncovered, Part 4 of 4 | Sensible Investing

  1. Larry Frank, Sr. May 22, 2017 at 9:08 am #

    A number of recent work has found that DALBAR overstates the effect of investor poor decision making. However, there still is a tendency for investors to hurt their returns through bad decisions nevertheless:

    Blanchett: “Mutual fund investors haven’t made exceptional timing decisions, but they haven’t been nearly as dumb as the DALBAR numbers claim. It’s hard to beat the market – especially through market timing – and few investors have been able to do it consistently for any reasonable time period. Investors and financial advisors should follow a disciplined approach that is focused on staying invested for the long-term rather than trying to beat the average investor (whomever he or she may be).”


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