Mutual Funds Have Turned into Mutual Admiration Societies for Their Managers
03.16.2006 05:05 | DISPATCHES
In The Battle for the Soul of Capitalism (Yale University Press, 2005), mutual fund innovator John Bogle echoes what former International Petroleum Exchange manager Chris Cook asserted in a previous Dispatch. Bogle writes that:
". . . a gradual move from owner's [shareholder's] capitalism -- providing the lion's share of the rewards of investment to those who put up the money and risk their own capital -- has culminated in an extreme version of managers' capitalism -- providing vastly disproportionate rewards to those [mutual and hedge funds, investment banks] whom we have trusted to manage our enterprises in the interest of their owners."
If you think that your 401(k), IRA, or investments held in mutual fund are going to afford you a comfortable retirement, consider this:
"Without a major reduction in the share of market returns arrogated to themselves by our mutual fund intermediaries, more than three-quarters of the future cumulative financial wealth produced by stocks over an investment lifetime will be consumed by fund managers, leaving less than 25 percent for the investors."
In one of the Bogle-isms for which he's famous, he sums up:
"The awesome magic of compounding returns has been overwhelmed by the tyranny of compounding costs."
Sure, he uses a lot of italics, but that's discreet in times that call for both bold type and bold actions.