Dismal popular mutual fund performances in 2008

[Bolimomo]

I have lost my faith in mutual funds since around 2002-2003. When I picked up the quarterly statements, I only found negative numbers in performance quarter after quarter. The thing is: they were quite happy to take my fees for management my money for me - i.e. to lose money on my behalf. I finally said "no". I could lose money on my own, thank you very much. I don't have anybody to help me lose money.

I did a quick study. I searched and found the top 10 most popular mutual funds in the USA (see attached graph). 1 of them seems to be not a stock fund. But 9 of them seem to be. Their performance as of Oct 2, 2008 in 2008: ranging from -18% (American Funds Washington Mutual A) to -37% (Fidelity Magellan). The benchmark S&P index is down by -23% for the year.

This basically puts the fund holders back to the level of beginning of 2004. If you haven't continue to contribute to the fund, you have the same amount of money as you had back in the beginning of 2004 (perhaps plus some dividend payments). And if you have continued to contribute since 2004, you have lost some net values (this is more than what you "could have had" at the beginning of 2008 ).

They always say "oh, don't worry... you are in for the LONG haul. The market will always COME BACK!". They will persuade you to buy more, as they did in Q1 2008 (the market started coming down), and Q2 2008 (the market came down even more... "this a great time to buy"), and Q3 2008 (the market came down even more... "the market has bottomed out, buy, buy, buy with everything you have").

So what is in this mutual fund game? Is it a piggy bank? You keep putting in quarters after quarters but you don't break it open? (But this piggy bank is a leaky bottom.)

At this juncture, will you sell all? Will you buy more? (But you have already bought with all you had in Q2. What do you do? Borrow money to buy more?)

For those who are "too busy" to manage your own money, this is what you get! -30% on your money. You are feeding those managers who manage your money. (As long as they could beat the S&P benchmark, they all walk with their heads held up high and say out loud - "look, I did better than the S&P"!). But aren't they supposed to make money with your money? Aren't they supposed to be the smart one? More than half of these lost more money than the S&P. You are better off just buying the index.

And my gosh... of all funds... Fidelity Magellan fund, -37% (S&P -23%) !!!!! What would Peter Lynch think about this?

[LongArm]

I have lost my faith in mutual funds since around 2002-2003.
Ah, at the end of the LAST bear market.

When I picked up the quarterly statements, I only found negative numbers in performance quarter after quarter.
That's what happens in bear markets--stocks go down. Even stocks held by mutual funds.

I did a quick study. I searched and found the top 10 most popular mutual funds in the USA (see attached graph).
Of course, "most popular" doesn't necessarily equate to "the best." Interesting to note, though, that DODGX, which HAS been one of the best, is doing so poorly. Just goes to show that what they say about not relying on past performance is true.

Their performance as of Oct 2, 2008 in 2008: ranging from -18% (American Funds Washington Mutual A) to -37% (Fidelity Magellan). The benchmark S&P index is down by -23% for the year.

This basically puts the fund holders back to the level of beginning of 2004.
Well, returns are actually a little better (less bad?) when you account for dividends, which the attached chart doesn't.

They always say "oh, don't worry... you are in for the LONG haul. The market will always COME BACK!".
And they're generally right! Stock mutual funds are for the long-term, not the short-term. ANYTHING can happen in the short-term.

They will persuade you to buy more, as they did in Q1 2008 (the market started coming down), and Q2 2008 (the market came down even more... "this a great time to buy"), and Q3 2008 (the market came down even more... "the market has bottomed out, buy, buy, buy with everything you have").
While no one can predict bottoms--and you shouldn't take too seriously anyone who thinks they can--it IS better to buy when prices are lower than when they're higher. So if the market drops each and every month for 12 months straight, each month is a better time to buy than the previous one. Again, we're assuming this is for the long-term.

You are feeding those managers who manage your money. (As long as they could beat the S&P benchmark, they all walk with their heads held up high and say out loud - "look, I did better than the S&P"!). But aren't they supposed to make money with your money? Aren't they supposed to be the smart one?
No manager of a large, straight-forward, diversified mutual fund is smart enough to "make you money" when the market is down 23%.

More than half of these lost more money than the S&P. You are better off just buying the index.
You're right! Most people ARE better off buying the index, as it outperforms the vast majority of actively-managed mutual funds over the long haul. Unless you are able to choose the very best mutual funds--and even then, superior returns aren't a given, as DODGX demonstrates--you're better off going with index funds or ETFs.

But what's more important than which funds you choose, is which asset classes/categories you choose them from. Those who have an intelligent asset mix won't typically suffer as much pain during bear markets as those who are holding stock funds only.

[Gordo]

I hear you Bolimomo. I've been in the same situation/time frame in my MF's (American Funds).

I think the times have slowly changed (along with the rules), thus eliminating the old 'long haul' approach.

I've been lurking/researching this site and its opened my eyes. "Laissez Faire" no more.