Hacker News Reader

Comment by ct | Hacker News Reader

I'm not sure I would recommend investing in mutual funds in the blog post. It makes me feel cheated and sick to know that the mutual fund "managers" there (whom for the most part switch out every few years or so) get paid more for doing the same amount of "work" as the fund grows due to them taking a percentage of the fund size vs. a performance based fee.

View on HN

Use index funds, a subspecies of mutual funds which replaces the manager with a computer that simply tracks the composition of a particular index (and thus the overall economy, for sufficiently broad indicies -- total market funds, for example).

The idea is "Well, mutual fund managers might take in hundreds of millions a year in fees, but they don't reliably actually do better than the market average anyhow, and those hundreds of millions come straight out of the investors' money. Instead, let the computer mathematically guarantee you get the average pre-fee, and then pay a much lesser fee to cover the transaction costs."

For more on this general topic, see anything written by Bogle.

My favorite trick is if you start with 10 funds the first year. The second year kill off the bad ones and merge all the assets in to the good ones. Do this for several years and your funds look like they have really good performance! It is the same as asking everyone to flip a penny in a classroom of 100 students and every time someone gets tails sit down until there is 1 student left. Then take bets on if they will get heads or tails the next time.

Reply on news.ycombinator.com