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My brother's thoughts on mutual funds

April 19th, 2009 at 05:25 am

My brother was here for a visit this week, and we had an interesting conversation about mutual funds. My dad used to be a stock broker, and now works for a mutual fund company that sells actively managed funds that carry a load. Of course he believes that you're getting the value of research that you're paying for with the load and management fees. My brother got both an engineering degree and an MBA. He now works in marketing, but because of his degree has more background in finance than I do.

Anyway, when my dad left his former company, there was a big going-away dinner that my brother attended. He said that it hit him that all these guys at the dinner, who were full-service brokers, are really just salesmen. They don't have a finance degree or tons of training in portfolio analysis. The advice they give is basically fed to them by the parent company.

My brother has had more interest than me in actively investing. He got burned on penny stocks early on, then a couple of years ago he looked at his individual stock-picking efforts and decided he was better off in mutual funds. After the recent market crash, my brother said he took a look at the actively managed funds he owned that were from the company my dad works for. In his opinion, they fared just as badly as the rest of the market, and did not see a large upside during the boom years. He has since unloaded most of his actively managed fund and moved the money to low-cost index funds.

While I question his judgement in getting out at the bottom, and I have no idea how big his portfolio is or which funds he used to own, it was interesting to know he had changed his strategy to one I hear many people here using.

7 Responses to “My brother's thoughts on mutual funds”

  1. Broken Arrow Says:

    Very interesting! Thank you for sharing!

  2. creditcardfree Says:

    Ah...he finally saw the light!! That's good news.

    I worked for a transfer agency of a mutual fund company (think customer service, ect.) and I can say that yes...sales are involved. The load is primarily there to pay the sales person. The parent company gets a portion, too...but it's all for the financial planner who sells you the funds.

  3. Ima saver Says:

    I have almost all of my money in low cost Index funds so I agree with your brother.

  4. terri77 Says:

    He didn't really get out at the bottom if he didn't cash out. He just reallocated, which was smart.

  5. disneysteve Says:

    Great that he finally caught on. I wonder how your father feels about that, though I also wonder how all the mutual fund sales people who push load funds on uneducated investors are able to sleep at night, knowing that their product is far inferior to the lower expense ratios and no load index funds.

  6. scfr Says:

    He didn't get out at the bottom ... just did a little smart re-shuffling (assuming he just switched from an actively managed stock fund to a stock index fund).

  7. baselle Says:

    Your brother realized that those stupid fees and expense ratios will be charged to your account no matter how badly it did; it represents the real money that the fund generates. Well done in general. It would have been better if he caught on before the drop, but you can't have everything.
    And others, even in the MSM, are catching on.

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