Before we explore why your wealth decreased despite a gain in your assets, you need to familiarize yourself with one thought: Mutual funds are as far away from being managed by professionals as a brick is away from turning into gold as you read this post. A mutual fund is good at two things:
1. Mutual funds take a piss poor product and sell it to the general public as something of value. They generate sales and have decent marketing gimmicks to get the uneducated individual to believe that a mutual fund is indeed a professional investment instrument. Mutual fund managers, or mismanagers as a matter of fact, created an illusion around a topic which they don’t understand either, but there is a saying that you need to be 10% smarter than the machine you want to use. The same applies with the entire mutual fund industry. As long as they can promote the idea that they are smarter than the unfortunate ‘investor’ who will be used for capital reasons, the mutual fund industry will live on. What makes it worse that they started to believe the illusion they have created.
2. Mutual funds will mismanage your portfolio on a constant base which means that if you seek constant performance, or lack thereof, a mutual fund is a goldmine. Mutual funds offer the perfect real life example of how not to treat your portfolio.
Now let us examine as of why your wealth has decreased despite a gain in your assets
(The below example will be simplified in order to increase comprehension and taxes as well as fees will not be taken into consideration)
Assume that you have a $10,000 portfolio and you decide to abuse your cash assets to the point that you happily hand them over to a mutual fund. Even better, you did so after you consulted with a financial planner. One year later, the mutual fund delivered you a lousy 12% annual return (keep in mind that mutual fund mismanagers high five each other after 8% and are happy in general if they beat the S&P 500 which equates to you classifying a year as being fantastic because you managed to not die, pathetic!).
Simple math, 12% out of $10,000 equals a gain of $1,200. Now your portfolio is worth $11,200 and you are quick to tap yourself on the shoulder for what you were made to believe is not only a good performance, but a smart investment decision as well. Sounds great! At least if you have either created an illusion or decided to follow an illusion which either way is the opposite of being smart. Try to remember that you live your life in reality.
We will only add to factors in this example, inflation and dollar deterioration. Assume a low inflation figure of 3% (which will be much higher because there has been an effort to find the least qualified representative of the human species to run the Federal Reserve and now the Septic Tank and his Plumbers have a field day every time they get together). Dollar deterioration of 9% (this figure is likely to be much higher).
After 3% inflation your $11,200 portfolio is worth only $10,864; after 9% Dollar deterioration your $10,864 portfolio is worth only $9,886 (once you add all other factors such as taxes and fees into the mix your portfolio is worth roughly $9,500 which represents a true loss in wealth of $500). This is one way the mutual fund industry does not want you to look at, because if you do you may find your way back to reality and kiss their illusion good bye. Sure, you can twist and turn the facts and disregard each variable which will bring you further away from the truth, but the only person that you betray is yourself.
The most valuable thing you have lost is time, a very precious commodity which can’t be recovered once depleted.
Next time you look at your mutual fund statement, you may want to have a closer look at what the numbers tell you and don’t be fooled by the headline fake which is being pitched to you by a salesman. It is like reading a book, almost everyone is capable of doing so but comprehension equals close to zero. True, the general consensus subscribes to the mutual fund illusion and their idiotic investment philosophy as well as their pathetic sales pitch, but the general consensus struggles financially and is dependent on third parties.
So, are you just capable of reading the story or do you comprehend what the story tells you?
Photo Credit: The picture in the top left corner was created by Salvatore Vuono and downloaded for free use at freedigitalphotos.net.
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