Giving Credit Where Credit is Due
Investors deserve more credit than most academics realize.
When their performances are strong, they usually stick to their selected fund companies. When their performances are weak, they generally bail.
The top fund company, in terms of performance, is Vanguard. And you can see that their loyalty ranking is also number one.
At the bottom of the heap, in terms of performance, you have Putnam. Likewise, investors haven’t been loyal to the company—moving their money out of Putnam based on weak returns.
Investors don’t keep their money with a company when it’s not performing. Obviously, the average investor is far more aware than we think.
|Company Performance Ranking||Company Name||Company Loyalty Ranking|
|#4||T Rowe Price||#4|
|#6||American Funds||#5 (Tied with Fidelity)|
|#9||Fidelity||#5 (Tied with American Funds)|
Note—With loyalty rankings, I can make educated assumptions that DFA and TIAA-CREF are likely in the top 3, despite the fact that I don’t have loyalty ranking data for them.
Source: Morningstar ratings for long term funds, as of 12/2007—Text Source: Don’t Count On It
That said, there’s one factor that doesn’t get calculated into the company fund rankings above:
You don’t have to buy mutual funds that charge sales fees. They’re lucrative for the people who sell you the funds, but the added financial liability isn’t fair. For example, if you invest $100,000 with most American Funds, you’ll end up paying $5,750 in fees, directly to your broker. The 5.75% sales fee means that you’ll have to make 6.1% on your money the following year, just to break even.
That kind of financial gouging doesn’t get included in fund performance calculations.
So if you invest with actively managed mutual funds, so “No” to sales loads.