Last year was horrible in many ways, but it was not horrible in at least one way: for the first time since the Great Recession, we have all decided to stop handing billions of our dollars to Wall Street money managers for no good reason.
What has long been understood by academics (but not by average people who want to invest money) is that, with rare exceptions, nobody knows what the financial markets are going to do in the short term, and therefore giving your money to some investment “manager” to pick stocks and other assorted investments for you with the promise that they will “beat the markets” is, for the most part, a waste of money. Just about all of em revert to the mean eventually. You’re better off reading some one-page investment primer off Google.com and then buying an index fund that just tracks the market, and leaving it alone—a strategy that will probably do better than an active manager, in part because its fees can be ten times lower. Even if your precious mutual fund manager does manage to beat the market, he’s scooping a lot of that return off the top into his own pockets.
Newly released data for 2015 shows that this message is filtering down to you, the average idiot (and the average idiot pension funds and whatnot that have all your retirement money). From the Wall Street Journal: “Clients yanked $207.3 billion in 2015 from U.S.-based mutual funds that hand pick their positions while pouring $413.8 billion into funds that mimic broad indexes for a fraction of the cost, according to new data from research firm Morningstar Inc... The movement of money in 2015 was the first net outflow from traditional money managers since the 2008 financial crisis and the largest-ever from actively managed U.S. stock funds.”
If the average actively managed mutual fund charges something like 1.5% a year in fees, that means that last year this industry lost more than $3 billion of our money that would have gone into their pockets, and then into prime Manhattan real estate and Maseratis. Instead, you and your retirement funds keep that money. And in the long run your investment return will most likely be better for it.
If you have your money in actively managed mutual funds that are not actively making you rich, why not pull it out, and stop subsidizing the lifestyles of fund managers? A good New Year’s resolution.