Dear Mr. Market:

As we close out the first quarter of 2013 investors are intrigued with impressive returns on top of the double-digit results posted for 2012.  Throughout the first quarter mutual funds set records for the amount of money invested in them.  The sad truth is that while investors watch the market continue this upward trend, breaking records in the process, the average investor is not seeing the same results in their accounts. In a recent report published by Goldman Sachs, nearly two thirds of the actively managed mutual funds underperformed the broad markets (S&P 1500 – consisting of large, mid and small cap stocks) last year.  While only a third of the funds beat the market last year the results are even more disappointing in 2011 as 84% of the funds couldn’t beat the broad markets.  While the so-called ‘experts’ have not posted impressive results what is even more shocking is what investors are paying these underperforming managers on a yearly basis.

According to ‘The Motley Fools’ the average actively managed equity fund charges an expense ratio of approximately 1.5%.   If you sit back and really think about this the numbers are eye opening.  If you invested $10,000, into an average actively managed fund, you paid $150 a year every year whether the fund performed well or underperformed (like the majority of them did the last several years).  This is like paying a private tutor to teach your children and being satisfied when they come home with straight “D’s” on their report card the majority of the time. Continue reading →