by Al Thomas
Mutual Funds are dead
by Al Thomas
You may have wondered why your mutual funds have been going
down for the past 2 years. The answer is very simple, but not
one you will hear from Wall Street as they want you to send money.
In order for stock mutual funds to go up you must have a bull
market. Unfortunately, that bull ended 2 years ago and is probably
not going to return for a long time. Yes, there will be short-term
rallies that can last from weeks to months, but the downward
spiral will continue. For the past 100 years the Price/Earnings
ratio of the S&P500 index has a mean average of about 15.
With the current P/E running about 41 the rubber band has been
stretched too far and is now contracting toward a more realistic
level. It will take a time, probably several years, for a true
bottom to be reached.
Mutual fund charters require the fund manager to be fully invested
at all times. The fund may be required to be invested in tech
stocks, pharmaceuticals, automotive, Asia or some other specific
category. If that particular sector is weak and almost all stocks
therein are headed down the fund manager has nothing to buy and
is not allowed to sell to put the money in cash or bonds to protect
the investors. Some are allowed to buy and sell what they wish;
others must invest in stocks of a particular index such as the
Dow Jones, S&P 500 or the Nasdaq. Most of the fund managers
today are too young to have experienced a bear market and do
not know how or what to do.
The small investor today has been taught to believe that the
stock market always goes up. From 1982 to 2000 it did, but that
was the end. All the talking heads on radio and TV have been
telling you to buy the breaks and that the market always comes
back except when it doesn't. Almost none of them has ever
seen or even studied a major bear market. The last one was 1973-74
just about the time most of these guys were in grade school or
high school. They haven't a clue and don't know when or how to
Today there are trillions of dollars in 401Ks, IRAs, pension
plans, etc. run by professional fund managers, financial planners,
bankers, etc. who have no idea how to protect their investors.
More trillions are getting ready to go down the drain. Last year
90% of stock mutual funds lost money. The Grim Reaper is now
the manager of your mutual fund.
For the little guy, that's you, there is only one way to protect
your money. If you are in one of those plans you can tell them
you want to have your funds in a money market account. At least
it won't go down. If there are any fixed income or bond funds
available to your account that is another safe venue.
Mutual funds are no longer a good long-term investment. The age
of the stock mutual fund is over. Dead. Don't let your hard-earned
money get away.
Copyright Albert W. Thomas All rights reserved. Author of "If
It Doesn't Go Up, Don't Buy It!" www.mutualfundmagic.com
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