Posts Tagged ‘Mutual Funds’

Jack Bogle on why the financial sector is too big

August 3, 2015

Jack Bogle is the founder of the Vanguard group of mutual funds and a pioneer of the concept of investing in no-load index funds with low expense ratios rather than trying to outguess the market.

Vanguard has the largest share of fund assets in the industry, and two-thirds of that is in index funds.  I myself have put my retirement savings in Vanguard and T. Rowe  Price funds.

This is from an interview of Jack Bogle in the August issue of Money magazine.

Q: You’re concerned that the financial sector is too big. Why?

Jack Bogle

Jack Bogle

A: The job of finance is to provide capital to companies. We do it to the tune of $250 billion a year in IPOs and secondary offerings. What else do we do? We encourage investors to trade about $32 trillion a year. So the way I calculate it, 99% of what we do in this industry is people trading with one another, with a gain only to the middleman. It’s a waste of resources.

via Money.com.

Mitch Tuchman of MarketWatch pointed out that $32 trillion is nearly double the size of the U.S. economy.  Merely moving this from one pocket to another during the course of a year is at best useless and at worst destabilizing to the U.S. economy.  Yet a lot of people get rich collecting fees just for moving the money around.

There should be a transaction tax of some fraction of 1 percent.  This wouldn’t affect serious long-term investors, but it would slow down speculators.

LINKS

Jack Bogle Explains How the Index Fund Won With Investors, an interview by Pat Regnier for Money magazine.

Why 99% of trading is pointless by Mitch Tuchman of MarketWatch.

Forgetful mutual fund investors perform best

September 15, 2014

c-75Proponents of Social Security privatization say that the average investor will do better investing the money that goes to Social Security taxes in the stock market.  The chart above, which is from Business Insider, shows the problem with this.

It is true enough that, over a long period of time, stock market averages, such as the Russell 2000 or the Standard & Poor’s 500, do better than Treasury bonds.  But most of us don’t do that.

We get overoptimistic when stock prices are going up and panic when stock prices are going down.  So we buy high and sell low—the opposite of what a smart investor should do.

The following is from an exchange between Barry Rithotz, a financial adviser and blogger, and James O’Shaughessy, of O’Shaughessy Asset Management, on Bloomberg Radio.

O’Shaughnessy: “Fidelity had done a study as to which accounts had done the best at Fidelity.  And what they found was…”

Ritholtz: “They were dead.”

O’Shaughnessy: “…No, that’s close though! They were the accounts of people who forgot they had an account at Fidelity.”

via Business Insider.

Ritholtz told about some of his experiences in estate planning, where a family fought over inherited assets for 10 or 20 years, didn’t touch them in the meantime and found those 10 or 20 years were the best period of performance.

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