I have 6 different mutual funds that have lost money for 5 years,?

Question

should i sell them all and start over , or should i wait it out and see if they go up? i know its a broad question.

Answer 1

What sets this one apart from all the others? Did it beat the Dow last year? No. If it can't beat the index it tracks, does that make it a "good" fund? No.

Let’s look at Investment Company of America (ICA), owned and operated by American Funds (AF). AF is an awesome fund company for a couple of reasons. There are several advantages and disadvantages:

1.AF is a private company which means they only answer to their MF holders. Fidelity is a good company also, but they are owned by stock holders. In the long run the company that only answers to you, the MF holder, is going to look out for your best interests.

2.AF also has some of the lowest annual fees to maintain an account of any MF company. All that being said, depending on your situation ICA may or may not be good for you. You need a competent advisor to help you with that.

3.I would be cautious with ICA as it is one of the largest MF in the world. They may seem like a good thing but it actually can be bad. It means it has much less flexibility to move its money around when conditions warrant it.

4.As far as EJ goes, they hire people on average who have very little experience in the industry, so at a minimum make sure your rep has a lot of experience and didn't just start last month at this. They also have agreements with companies like American Funds where their reps get a bigger commission to them then they do with other products. The concern being your advice from EJ might be tainted by the reps desire to get more commission. You need to work with an independent rep to assist you with you decisions; one who will give you all the information and doesn't have a hidden agenda.

Now let's look at MF's, in general, or the decision to use one at all.

If you invest in a MF, you have turned that responsibility over to someone else. To me, they are mostly the same, in general, in terms of results. Fewer than 10% can beat the Dow or other index it follows because of their fees. Why would you pay someone you don't know, whom will almost certainly underperform the market, an annual fee of 2.5% to do something you can do yourself, and do it better by buying an ETF, without any input from you after the initial purchase? An ETF is a publicly traded “Exchange Traded Fund, that trades just like a stock). Just buy the Diamonds (the DJIA ETF) if you want to let it ride on the Dow, or the Spyders (SPY - the S&P 500 ETF), or the Nasdaq (QQQQ), or diversify across the entire market by buying all three. The ETF's trade just like a stock or MF. If you want to diversify, and you want to Buy and Hold, buy an ETF.

A MF is always "in" the market, so you are at the mercy of the ups and downs of the Dow. You are unable to manage your risk with a MF, so you can't put a Protective Stop on a MF, at say 10%, to lock in your profits when the market goes down. You don't have a clue what's going to happen. That is not my idea of investing.

Actually, if done properly, it is more work to investigate all of the MF's and their advisors and their traders and their fees and their methods, than it is to investigate all the similar applicable info about stocks. To me, it's more like a conscious choice to be ignorant, to simply and blindly turn your money over to a stranger because they are "listed," like you do at a bank. Stocks are "listed," as are commodities and ETF's and everything else. With a mutual fund, you've just added a whole new set of unknowns to the equation.

The best you can do in any investment is try to increase your odds of success and reduce your risk. You can do these things yourself, but not in a mutual fund.

MF's are so 20th Century. Relics of the past. Unneccessary. Buy an ETF. Or sell an ETF short and bet on the downside. There are two sides to every market, not just the upside.

Like when your teenage daughter fails to come home on time, you worry because you don't have enough information to "know" what will happen. You go through all of the possible outcomes, but because of a lack of information and being uninformed, they are all left up in the air and equally unpalatable except for the one outcome you "wish" and "hope" for.

But with investing, just a little foreknowldge and information can make all of the possible outcomes known. It takes some hard work and learning, but better than being the anxious parent, hoping and praying and wishing for your daughter to come home.

If you do your work, evaluate the risk, identify entry and exit at support and resistance levels or use whatever signal generator you are comfortable using, and apply good money management techniques, then you've done all you can do, and no amount of worrying or "hope" or "wishing" will change the outcome. You know what yours risks are and how much you can lose, and your profit is open-ended.

This is why mutual funds (mf) and investment advisors managing your money doesn't make any sense to me. You are the anxious parent, waiting for an unknown outcome without any control over your own future. You can do the same thing a MF can do by buying Index ETF's. But you can also take profits off the table, add Protective Stops to limit your risk, and stay out when risk becomes unpalatable. You can also bet on the downside of the market (short), whereas a MF cannot. A MF is always "in" the market (long), exposing you to enormous risk and "worry."

You cannot avoid or escape risk. You can put your money under your mattress, and inflation will eat at it, or the rats will, or there might be a fire, or a robber may take it. But you can manage risk, if you invest it properly. This presuposes you have foreknowledge.

Answer 2

You are Not the ONLY person who is in this situation.

All who bought Mutual Funds in 1998 to Mid 2000 and held them are still showing losses. Even if they set up a well designed asset allocation by style and class. Even some people who bought in the mid 1990's are showing losses.

People who have been drawing income off these allocations since the mid 1990's are showing huge losses and are in danger of going broke a lot sooner then they expect. Remember in the mid 1990's all the "advisor experts" said it was very safe to draw income at a 5% to 6% rate annually off these assets. Talk to an "advisor expert" today and their story has completely changed. Now they say 3% to 4% is safe to draw income.

Remember they always hide behind that famous disclosure " Past performance is not a guarantee of future results". Yet they always make their case to take on RISK on past performance and projecting it to the future. Oh yea, they said "Past performance is not a guarantee of future results" so they are excused for these losses.

You should either stand pat and wait it out or if you decide to start over you should consider a different approach. An approach where your account value does not decline and any interest credited to your account does not decline.

Fixed Index Annuities - Go here to learn more about them: http://www.jdsannuities.com/index_annuities

Answer 3

If I were a betting man, I would bet those are growth and technology funds and large cap funds. One thing you did not mention was what your overall performance record is for that time period of all of your funds.

If you are overweighted in technology and growth funds and large cap funds, then it would be best to redistribute some of your assets. But some of the large cap stocks now are at the best values they have been in years, even decades. GE, MMM, MSFT, DELL, INTC. It would be a mistake I believe to dump funds that have concentrations in those.

Consider the tax consequenses also. If you have large amounts of capital gains to offset, now would be an opportune time to offset them. If not then that might have a bearing on your actions.

If you do not own any funds that are invested in China or India or Europe and Japan for that matter now might be the time to rotate some of your assets into those areas where there will be more diversificaton of your holdings. The growth prospects of China and India are much better than for the U S. Holdings in Japan and Europe insulate you somewhat from a drop in the value of the dollar.

Answer 4

You'd want to investigate why they lost money. Looking at a specific fund, there are two broad reasons why they might have done poorly:

- The style/sector that the fund invests in did poorly.
(in which case you need to evaluate whether you think that style of fund has good prospects).
- The fund manager underperformed relative to other similar funds. (In which case I'd drop them)

To judge that, you need to know what the fund's stated style and objectives are, and how that 'style' did in general. If you are a US investor, you might want to check morningstar.com. Two examples:

The Fidelity Aggressive Growth fund has a 5 year return of negative 0.42%. It invests in mid sized companies with prospects of high growth. Morningstar indidcates that it has done much worse then the average 'midcap growth' fund over the past 5 years. So I'd be tempted to drop this fund, at least based on this information alone. The fund has not performed well. For contrast, T. Rowe Price's Midcap growth fund - which is invested in a similar market - has a 10% 5-year return.

For a second example, consider a canadian investor in the Synergy American Corporate Class (this is off morningstar's canadian site.) It has lost 2% a year on average for the past 5 year's. But its index - the S&P500 in canadian dollars (US dollar has fallen) is -3.2%. So although the fund has lost money, it has done better then most funds in the mandate. I can't blame the manager that US equity in canadian dollars has done poorly - _I_ chose what fund to buy. The fund manager has - given that mandate - done well. So would I keep this fund? This depends if I want a US equity fund going forward. If I do, this one still looks like a decent choice (again, based only off the 5 year performance numbers).

If you doubt your ability to pick 'winning' funds, you might want to consider moving to indexed or passive funds. These funds will do no worse or better then average in their 'style' - before fees, which are always lower.

A couple more notes - you should be careful NOT to just jump from style to style based no what did well last year. Styles (like 'mid cap value' or 'large companies - growth') tend to be somewhat cyclical - in fact, if you are going to make a change, you are probably better off to buy styles that did _poorly_ last year, those are the ones more likely poised to do well.

You should also avoid thinking about 'what you bought at'. It doesn't matter. There's nothing magic about 'making your money back'. If a fund went down, that money is gone. There is no particular reason to hope to earn money in that fund rather then a new one. You _should_ evaluate fund performance every year, though you should also be looking at more then a one year performance. Broadly speaking, you should be considering first whether you are happy with your asset mix and styles (foreign/international, stock/bonds, value/growth etc) - based on views of where markets are headed, combined with your risk tolerance. Then you should be considering whether the funds you have show long term ability to do well within their individual markets.

Answer 5

It's a great question. Go to your bank and talk to their investment person. They can tell you the histories of various funds and which funds are highest rated at the moment. You should do this every year because funds change over time.

Answer 6

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Answer 7

I sold them and started buying individual stocks. I may turn out equally unsuccessful, but, at least, its more fun.

Answer 8

Sounds to me like you're not well diversified.

Today is always the right day to get diversified.