After significant stock index declines in 2008 and then new lows in 2009 mutual funds have had to be creative when talking about their offerings since the funds aren’t making any money. The current trend is to leave out the historical returns of the fund because the one-year and three-year returns will be negative and longer-term returns for five-year and ten-year annual returns are nearly zero or one to two percent if they did better than the S&P 500.
So, if they can’t talk about making money they harp on fees as a distraction – see our costs are low! Yeah, but you’re still not making any money!
Mutual funds have done this before in 2002 when their one-year and three-year returns were negative due to the 2000 stock market decline.
For S&P 500 index buyers/investors over the last ten years or so their performance has suffered and as the Economist magazine reported at the end of 2008 for that ten year period European and US index investors lost around 20 percent to 25 percent – not including inflation during that period. The average investor would have been better off by taking ten years off from investing!
But that never shows up in ads — and the average investor has been saddled with investment costs over that same period so the average investor will need a high rate of return on an annual basis just to break even from the losses over the past ten years or so.
How about those target-date retirement funds? Well, they’re negative too — the stock market is not a very good vehicle to achieve retirement savings for average investors. And T. Rowe Price has the IRA contribution deadline date wrong – they’ve listed the date incorrectly since 2008 – meaning that the deadline in some cases has passed six months prior to the release of the printed magazine ad.
And the other trend is for the advertising to say stay the course and buy in now to the fund because the management has special insight into making money when they’re are good buying opportunities – Oh yeah, then why wasn’t the fund manager able to have this special insight before the big decline in 2008 and 2009 and profit from it? Or at least be in cash so as not to have negative returns from an overall stock market decline, right?
You think I’m going to trust you to know what a good buying opportunity is when you couldn’t tell the difference from a horrible impending market doom, worst recession period in fifty-years?
You’re advertising isn’t good enough to do that. Good thing I was never convinced to invest with your crummy funds.
***Update:
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Investment ads: Long-term = wrong-turn #2
Investment ads #1: Long-term = wrong turn
