New Here? Get the Free Newsletter

Oblivious Investor offers a free newsletter providing tips on low-maintenance investing, tax planning, and retirement planning. Join over 21,000 email subscribers:

Articles are published Monday and Friday. You can unsubscribe at any time.

Is your fund manager gambling with your money?

According to Morningstar, the average annual turnover within domestic stock funds is 104%. In other words, on average, domestic equity funds hold a stock for just 351 days before selling it.

Of course, such high turnover has a negative impact on returns in that it substantially increases costs. But even leaving that issue aside for a moment, doesn’t this level of turnover strike anyone else as a bit frightening?

I’m not a stock picker, and I never have been. Nor do I want to pay anyone to pick stocks for me. That said, if I was forced to choose between:

  1. A fund manager engaging in the Warren Buffett/Ben Graham “my-favorite-holding-period-is-forever”-type of investing, or
  2. A fund manager who holds stocks for less than one year before selling…

…I’d have very little hesitation about going with option #1.

I’m not here to say that it’s impossible to be a successful short-term trader. I am, however, concerned that many fund investors think they’re using a long-term buy & hold strategy, when in reality, all they’re doing is paying somebody to engage in short-term stock picking with their money.

New to Investing? See My Related Book:

Book6FrontCoverTiltedBlue

Investing Made Simple: Investing in Index Funds Explained in 100 Pages or Less

Topics Covered in the Book:
  • Asset Allocation: Why it's so important, and how to determine your own,
  • How to to pick winning mutual funds,
  • Roth IRA vs. traditional IRA vs. 401(k),
  • Click here to see the full list.

A Testimonial:

"A wonderful book that tells its readers, with simple logical explanations, our Boglehead Philosophy for successful investing." - Taylor Larimore, author of The Bogleheads' Guide to Investing

Comments

  1. Dave C. says:

    In the end, I imagine that many people aren’t thinking enough when they are using an investment strategy that requires much though, and thinking too much when they would benefit from a strategy that works best with no thought. Did that make sense? 😀

Disclaimer: By using this site, you explicitly agree to its Terms of Use and agree not to hold Simple Subjects, LLC or any of its members liable in any way for damages arising from decisions you make based on the information made available on this site. I am not a financial or investment advisor, and the information on this site is for informational and entertainment purposes only and does not constitute financial advice.

Copyright 2019 Simple Subjects, LLC - All rights reserved. To be clear: This means that, aside from small quotations, the material on this site may not be republished elsewhere without my express permission. Terms of Use and Privacy Policy

My new Social Security calculator: Open Social Security