How great did your mutual fund do this year? Mine underperformed.

I try not to look at the performance of my long-term retirement/mutual funds because

1. I want to trade them
2. I get very angry
3. I wish I were invested elsewhere

The same cycle is true again this year, and this may be the death knell in the coffin for my mutual funds.

I am invested in five diversified funds with different money managers, and four out of the five underperformed the S&P 500 index, some by more than an amount I’m comfortable with.

For about two years now, I’ve favored ETFs over normal, diversified mutual funds, but have not made significant changes in my long-term investment objectives as directed by my financial adviser.

I am a trader, I prefer short-term impulse patterns in the market, and I am most comfortable with the variables that influence short-term price movements in market indexes and selected stocks.

It is for that reason that I trust my longer term investments to those I feel far more qualified than me, including my personal financial advisor and the money/fund managers in which my professional trusts.

However, for the last two years, my largest fund has underperformed the S&P 500, and subsequently has underperformed the SPY, an Index Exchange Traded Fund in which I could be invested and pay about .5 basis points instead of just under 2.0 basis points that I pay now for these professional fund managers to underperform the market.

So when you see the next chart, realize that I had to pay a fund manager (or group of managers) approximately 2 additional percent to underperform an index where I would have been guaranteed market returns for the year:

The SPY (ETF) appreciated just over 4% this year.

My largest mutual fund (which will mercifully be unnamed) lost just under 8%. When you add the 2% management fee, I lost 10% of my portfolio value that was invested in that fund.

Needless to say, I am extremely unhappy and will very likely will be switching funds upon the next meeting with my advisor. In fact, I may be pulling the money together and placing a part of that in bonds or in the DIA (Dow Jones ETF) or SPY (S&P 500 ETF) so that – at least – I know I will reap what the market returns, and will save on management fees.

I sincerely hope your mutual fund portfolio did better than my professionally managed portfolio this year, but if not, may I recommend you browse around the internet and read up on the wonderful benefits of Exchange Traded Funds. Don’t be afraid to make changes if need be.

Here is a quick summary of some key benefits of Exchange Traded Funds:

• Directed Exposure (and diversification) to certain market segments (or sectors)
• (Significantly) Lower expense fees (due to no ‘money managers’)
• Intraday Entries and Exits (as opposed to end-of-day repositioning of your money)
• Immediate access to your money (same reason as above)
• Guaranteed market returns (of your ETF’s Index) with no chance of significant underperformance, but you’ll also never outperform the index
• Total Control of your money (which can also be a negative)

May everyone have a Happy New Year!