Mutual Funds

Today I was sharing with one of my friends who works at Intel where I used to work at a decade ago. Since then, I've learned a great deal about stocks and yet, there is still a great deal more to learn.

Now, I don't know a lot about mutual funds, but some of the things I do know are:

1. There is a load.
2. You can't trade these like stocks.
3. It's the closing price that counts. Doesn't matter what happens during the day.
4. Not easily liquid.

That's about the extent of what I know and some fancy sounding names like contrafund or growth company.

Being a chartist and not really understanding what these funds are comprised of, I just looked at charts.

There were 4 funds I looked at. I won't say which company as I don't really want to bash any one mutual fund company.

Two of the funds were trading in the $70-80 range and the other 2 were in the $18-22 range. I did a comparison of these 4 funds with the $SPX and they pretty much followed the $SPX.

Maybe someone can shed some light into this for me. I do realize mutual funds are comprised of a number of different stocks from different areas and many of these stocks can follow the $SPX, which is a broad reflection of the overall market and a pretty darned good one, might I add.

So, if these 4 funds follow the $SPX, I'm wondering what is the point of having the mutual funds? Are they (the fund managers) really doing all that much work? With the loads that are imposed, I'm thinking that though it follows the $SPX, the return on the mutual funds are actually LESS because of the fees to manage the funds. That seems like a rip to me. Okay, excuse my ignorance. Maybe I just don't really understand the point.

One of my best friends shared with me that his fund managers said he should be expecting around a 5% return on his $500K+ this year due to the things happening in the market. What do you think, Tim? Five fricken percent. Last week while I was at my bank, just for fun I asked what sort of return I could get if I parked $500K in CDs. The banker said 5%. Hmmmm...no load on a CD. Guaranteed 5% for the year with less risk. I don't think that requires a whole lot of work, don't you?

Man, I cannot believe what a rip my friend's fund managers are. As those bear traders know, when it goes DOWN, it goes down quicker/faster than going up. Gravity works for you rather than against you and often times, to go down, it's half the time as going up. What this equates to is faster money or more money in a shorter period of time. What a racket, eh?

Well, maybe there are some rules here that I really don't understand about managing mutual funds. There is soooo much I do not know, and even what I do know is rather simple. How I understand it, is that if they are invested in all these stocks, they buy insurance to protect against things going against them (puts), so anyway you look at it, they are not "losing". If the stocks go up, they make money. If it goes against them, they have puts that increase in value, and at the worst, offsets the stocks they may not be able to liquidate as easily.

Yes, I know if they have hundreds of millions of dollars in a stock, they can just dump them all at once, causing a big panic. That's what the "insurance" is for.

So, from where I see it, mutual funds really are a big rip.

As for my friend that I was looking at his funds and INTC stock, if INTC would allow 2 changes a month to his account, he could greatly increase his 401K account without ever adding more money to it. If INTC matches, he should put up to that percentage each pay period. It's free money.

I went back to the past 14 months for his INTC fund. He hasn't made much in the past year on his 401K. So, assuming he had about what he has now, if he just made 2 changes a month to his account just alternating between INTC fund and cash, he'd average from 0% to 14.7%, an average of +7.28% per month. His 401K would've been up 266% without adding another penny in the past 14 months.

If he made an average of 7.28% on his money each month, in less than 5 yrs, he'd have over $1M to his account, not adding another penny. You think your 401K managers want you to know that? I didn't know that until the last 6 months of working for my last company. I took advantage of it then, but it was a little too late.

I had far more invested than my friend in my 401K and worked there for 8.5 yrs. If I just did it the past 5 yrs of working there, that would've been over $3M rather than the amount I have. All I did was alternate between a cash fund and my employer's stock fund. I avoided using any mutual funds.

If my thinking is off in any of this, feel free to correct me anyone.
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