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Do You Buy Mutual Funds in Retirement Accounts? | Retirement Planning

Do You Buy Mutual Funds in Retirement Accounts? | Retirement Planning

Mutual funds are for the lazy investor and should be obsolete in your portfolio. Not long ago, the idea with mutual funds was to have a diversified portfolio and the prospect of a professional money manager in charge of your portfolio. But the truth is, there are still $18 trillion dollars sitting in these less than optimal investments that cost investors billions in lost returns every year.

Hello again, Dave Duley here, a 40-year veteran of the financial markets and a registered investment advisor here in North Atlanta. Take two seconds and click subscribe below, and every time I post a video you’ll get notified.

So let’s dive right in. Today I want to explain why mutual funds are for the unsophisticated investor and why you pay a higher price and fees by being lazy than hiring an advisory firm that deals only in individual equities and narrow ETFs.

Most every mutual fund is tasked with trying to outperform a particular index or benchmark. This is how they measure their performance of outperforming or underperforming. So let’s take a look at how they’re doing today.

Now, over the last five years, large-cap professional money managers have underperformed the S&P 500 by 76%. Over that same period, 82% of mid-cap managers have underperformed the mid-cap index, and over the last five years, 90.2% of small-cap mutual fund managers have underperformed the small cap 600.

Are you surprised? And if you think this is only in relation to stocks, you’re absolutely wrong. Fixed income fund managers, investment grade managers, have underperformed 98% of the time, and high-yield bond managers 94% of the time.

The embarrassing thing is, the longer back we go, the worse they’ve performed. Now that downright stinks. Would you go to Vegas knowing you have a 90.2% chance of losing at any type of game out there?

Now we’ve got fees we have to contend with. We’ve got load fees, expense ratio fees, 12b-1 fees, and tax implications. There should be no load fees whatsoever. ETFs and individual stocks have no such thing. The average expense ratio fee today is 0.78% in a mutual fund across the board, and an ETF is right at 1.08%, a small fraction. 12b-1 fees are just advertising fees to promote the fund, and ETFs have none. None of those things.

And the big one is tax implications, where the so-called professional fund manager is moving in and out of position constantly, and each move has a tax implication to you individually.

Look, I get it. In your 401(k), you don’t have much choice because 99% of private companies only offer mutual funds or worse, bond funds, as a choice to choose from. But many have decided to allow the plan participant to do what’s called an in-service rollover, meaning you can choose to take a major portion of your 401(k) and roll it out to your own IRA and therefore you can self-manage. Most companies will allow this after so many years of service, but not asking if this is available is the wrong thing. Don’t make that mistake.

Stay away from target funds inside your 401(k) as they are nothing but garbage. If you have no choice, then go with index funds. You must choose actively managed mutual funds. Index funds are passive funds with less fees.

But for those of you currently holding mutual funds and accounts outside of your 401(k), you need to get a professional registered fiduciary that actively manages equities and can protect those positions in volatile markets like the market we’re in today.

Now we hold no mutual funds here at our firm and never have. If your current firm is holding mutual funds or bond funds, then a red flag should go up. Why are they charging you a fee to manage your account just to ship your money off to so-called fund managers that charge you additional fees? Deal with advisory firms that manage your money in-house. If they don’t, then you need to run.

Listen, if you enjoy the content here, click the like button below and subscribe. I’ll continue to bring you great content. If you want a review of your 401(k) or just insight on your current funds, go to my website and complete the information and we will reach out and get you options that are available.

Until next time.

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Investment Advisory services through Georgia Advisory Group LLC. A registered investment advisory firm. Custodian services provided by First Clearing. First Clearing is a trade name used by Wells Fargo Clearing Services, LLC and Non- Bank Affiliate of Wells Fargo and Company. Investing involves risks, including possible loss of principal. Please consider the investment objectives, risks, charges and expenses. /