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I do not have much esteem for the mutual fund industry. And that’s putting it mildly.
As a group, mutual funds underperform their indexes. That means you’d be better off buying an ETF like the SPDR S&P 500 (NYSE: SPY) fund than a blue chip mutual fund.
And as a point of fact and disclosure, as an editor for an independent research firm, I’m in direct competition with the mutual fund industry. I believe it’s a huge machine designed to suck up as much of your savings as it can – with zero accountability or recourse when it inevitably underperforms.
Compare the mutual fund industry to the business I work for: If you’re unhappy with my research, you can ask for a full refund. Good luck getting a refund from your mutual fund if you don’t like their work.
I have zero conflict of interest in my investment research: I tell you exactly how I invest, when, and why – and you can come to your own conclusions if you want to follow suit or go your own way.
With a mutual fund, you have no idea why your fund buys or sells, or if its managers have any conflicts of interest.
So my feeling is – if you want ordinary returns, why pay a mutual fund 2% or more every year for the privilege of underperforming an index fund?
I don’t know the answer to that. But mutual funds still manage to be one of the largest sectors in the investment world. Just buy the SPY ETF if you’re interested in keeping pace with the market.
That said, there are a few exceptions to my vitriol against the industry. Bill Gross is one of them.
Bill Gross is one of the premier investors in the world. He runs the world’s largest group of mutual funds through his firm, the Pacific Investment Management Company (PIMCO).
PIMCO runs dozens of mutual funds and ETFs, and Bill Gross himself specializes in bond investing – hence his nickname the “Bond King.”
But the bond king isn’t buying so many bonds these days. He’s reduced the bond holdings in his funds over the past few years.
And recently he said that he doesn’t think bonds OR stocks will return the usual 6-10% average gains over the coming decade.
But… he does recommend buying gold.
On September 10, he said, “Gold… is a better investment than a bond or a stock…”
When the world’s most famous bond investor says to stop buying bonds, you know it’s serious.