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The Downside Of Knowing A Lot About Your Mutual Fund
At the risk of appearing to be a spoil-sport here, I can see where the headline makes sense. I will admit to not reading the article, though it wasn't for lack of trying. I just don't have a paid subscription to WSJ. The article may have covered what follows, so if it does, cut me a little slack.
When considering a new fund for our portfolios, how many of us here at MFO actually read the full prospectus cove-to-cover? My concerns are typically the fund's objective, long-term past performance, manager stability, and fund costs including ER and transaction fees if they apply. I use 'free' M*'s data regarding risk, upside/downside, mean return and standard deviation of returns. BTW, I have NO index funds; they're all actively managed. I'm willing to eat ER - within reason - on the upside IF the manager has proven his/her ability to shepherd on the down side.
I seriously doubt that the average mutual fund investor - and my assumption is that most are investing through 401(k) and 403(b) plans - could not care less about "what's under the hood", and might find reading through a full prospectus as opposed to a fund's marketing one-page cut-sheet not only intimidating but pointless. Would adding a few lines that identified the Sharpe Ratio, the Sortino Ratio, or some other metric REALLY help the average investor, or would it lead to paralysis-by-analysis?
One should not need a PhD in a STEM-related field to understand what one is buying and the risks/rewards associated with the product. I'm in favor of LESS BUT BETTER information. YMMV.
Comments
Awful article.
And in WSJ no less.
I'll chalk this up to false-correlation.
I scratched my head and it started to rain ...
Regards,
Ted
When considering a new fund for our portfolios, how many of us here at MFO actually read the full prospectus cove-to-cover? My concerns are typically the fund's objective, long-term past performance, manager stability, and fund costs including ER and transaction fees if they apply. I use 'free' M*'s data regarding risk, upside/downside, mean return and standard deviation of returns. BTW, I have NO index funds; they're all actively managed. I'm willing to eat ER - within reason - on the upside IF the manager has proven his/her ability to shepherd on the down side.
I seriously doubt that the average mutual fund investor - and my assumption is that most are investing through 401(k) and 403(b) plans - could not care less about "what's under the hood", and might find reading through a full prospectus as opposed to a fund's marketing one-page cut-sheet not only intimidating but pointless. Would adding a few lines that identified the Sharpe Ratio, the Sortino Ratio, or some other metric REALLY help the average investor, or would it lead to paralysis-by-analysis?
One should not need a PhD in a STEM-related field to understand what one is buying and the risks/rewards associated with the product. I'm in favor of LESS BUT BETTER information. YMMV.