"First off, what you're describing is how you are basically trading your own funds. You're not doing what I did. I invested in a mutual fund (Magellan was the highest rated at the time) and concentrated on my work, and let them invest my money. They lost 66% of it in 2000, and when I cashed the rest of it out in 2012, it was still sitting at exactly $40K, no net gain since 2000. That was my experience, you can believe it or not.
Secondly, in your previous post you did admit that the stock market crashes of 2000 and 2008 hit you very hard, so hard that your wife went back to work. I'm sure you spent a great deal of time managing your funds after each of those crashes to recoup your losses. In essence, you were investing your own stocks, by selecting different funds. That's contrary to what most people do with mutual funds. People just dump their money in and let the fund manager handle the trades. "
I'm afraid the statements above show the general publics mis-understanding of “mutual funds” and contain many incorrect and erroneous statements.
Here is a brief description of mutual funds.
There are thousands of funds each of them have different goals, objectives, and intended consumers.
Fund objectives vary widely and wildly. Those objectives cover the spectrum of low to high on the following measures
- risk to capital
- appreciation potential
- tax status
- speculative to fundamentals
- locale (municipal, state, federal, worldwide) of investment
- maximize beta
- minimize alpha
... and so forth!
Each mutual fund is intended for a particular type of investor and is ranked on each of the measures shown above.
may have been "highest" on one measure but low on many others. Depending on what were your objectives – Magellan
might not have been the correct fund for you.
Fidelity Magellan Mutual fund (FMAGX) is a Large Growth Core
Value fund as described by Morningstar but their risk chart does show a significant portion of the FMAGX is the highest risk category. Additionally, a 15-year history
shows that FMAGX loses 15% more in value during a market downturn than does the average mutual fund with the same objectives.
Twenty five years ago I invested a great deal of money in FMAGX but it's management and performance changed. As we approached retirement we had less and less money in FMAGX. Now, I do not put any money into the FMAGX fund that I will need to spend during the next five years. It is a long term growth fund and you must be willing to let your money sit there during bad times in order for it to grow again.
FMAGX has shown the following gains – the number shown is the value on September 10, 2014 of a $10,000 investment made in the FMAGX fund on September 10 of the following years:
1994 $42,042 ($10,000 invested in FMAGX in 1994 would be worth $42K today)
2009 $18,246 (put $10k in FMAGX as the market rebounds - it is work $18k today!)
Those are rather nice returns, especially the 87% gain during the last 10-years and the 2nd worst economic downturn in US History
$10,000 invested in FMAGX on 01/01/2000 would have been worth $9,172 on January 1, 2001. That is a big loss but it is not the 66% loss quoted above.
It is true that $10,000 invested in FMAGX in September 2000 would have been worth only $4,629 in September 2008 but would have rebounded to $9,600 in February 2011 and $10,000 in June 2013.
The bottom line is – You cannot just invest and forget in most mutual funds. Each fund has a particular objective and as your life situation changes the funds you invest in must change.
There are many “target year” funds that might allow you to invest and forget. For example, you know you will need some funds in 2017 so you invest in a fund that manage their investments to diminish risk and maintain more capital preservation as it approaches the target year. Many retirement planners suggest you use “target year” funds that mature in three to five year increments beginning with your anticipated retirement year.
My retirement funds, which provide much of our day-to-day cash) are invested in funds that preserve initial capital and generate income
. Those funds will not grow as much or as fast but will minimize losses during economic downturns.
PIMCO Total Return (PTTRX) is a favorite of mine. A $10,000 investment in early 2000 would have been worth the following in September of each year.
PTTRX is slow and steady – I give up any hope for big growth but I know that the money will be there when I need it. I am always pretty sure I will not have to sell at a loss if I have an unexpected need for more cash than normal.
PTTRX only lost
about 2% of it’s value during the worst of the 2008 crash.
We do not need to touch my wife's funds for another six to eight years so she uses more aggressive and risky funds such as Fidelity ContraFund (FCNTX). It soars and it crashes but over a period of five or more years it makes a lot of money.
A $10,000 FCNTX nvestment in early 2000 would have been worth the following in September of each year.
2004 $12,610 (it lost a lot in 2000 - 2001)
2008 $16,860 (it eventually went down to $11,733 late in 2008)
PTTRX held it's value during two bear markets but now FCNTX is about 25% ahead on total return since 2000. Take a risk - lose a lot if you have to sell or gain a lot if you can ride out the down turns.
We only spend about 20 hours every year or 18-months on our investment choices. That seems like a reasonable investment of time for peace of mind.
Sorry for the long dissertation but I just want people to understand that a little effort spent doing an annual mutual fund review, and careful matching of your investment objectives to mutual fund objective will yield happier retirees.