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We Beat The Big Dogs

We Beat The Big Dogs
source: Getty Images

This is just a quick entry to convey one message. Our Core Model Portfolio is likely beating the pants off of your mutual fund! As the chart below shows, the Core Model Portfolio has consistently outperformed the major indexes and the typical mutual fund over the last one, three, and five years as well as since the inception (12/6/2002) of the Core Model Portfolio. But the chart understates the degree to which our portfolio outperformed relative to mutual funds because the costs of owning the funds have not been considered in the returns. (Click chart or here for larger image.)

Core Portfolio Returns
source: Foliofn.com, Standard & Poors, Wilshire, Wall Street Journal. Disclosure.

Correction: The annualized 3-year return ending 12/31/2010 for the Core Model Portfolio is actually 3.55% making the “Margin of Victory” for that time period 5.76%.

I do not want to make this post too lengthy. I plan on talking about the costs of mutual fund ownership in later posts. (It’s a topic deserving some attention.) 


Let me just summarize by saying studies have shown, when commissions, brokerage fees, marketing fees, redemption fees, taxes and the like are considered, the typical load mutual fund costs somewhere in excess of 4% – 6% of your assets. Although less offensive, a no-load fund costs somewhere between 3% – 5%. Let’s call it a cool 4.5%.

Think about that for a moment. Since our portfolio’s inception in December of 2002, the typical mutual fund (probably the one in your 401k or IRA) has returned 6.8% per year. However, it has cost you 4.5% to own that fund leaving only 2.3% in returns. In other words, the mutual fund kept 66% of the returns for itself.

Our portfolio, on the other hand, has returned 12.3% over the same period and cost our investors 1.5% – 2% making our margin of victory over mutual funds greater than the above chart illustrates. Our returns net of fees are about 10.8% for most of our clients while the typical mutual fund returned 2.3% net of fees. It’s no contest.

Do not get me wrong. I am not saying don’t invest in mutual funds. Mutual funds are still a great option given the landscape of choices the average investor has. It’s better than a CD, a savings account or your mattress. But what I am saying is most investors can do better than a mutual fund. Excuse our obvious self-promotion but one great example is our portfolio.

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