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SmartMoney Magazine Senior Writer James Sterngold on the risks to your mutual fund investments.
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Protect your investments but some say mutual fund guardians just aren't doing their job.
Yet are still raking in the Dow why should you care.
Because half of America's retirement savings I'm -- the money you have in your 401K or IRA you're invested in these funds here to explain.
-- Stern -- senior writer for Smart money magazine.
James -- of the show I have to say I covered mutual funds for a long time I never knew they had -- -- you have a lot of company these boards are terribly important at least on paper.
But they operate in secret and there's just tremendous lack of knowledge about what it is that they're supposed to be doing for our -- supposed to be protecting my investments and making sure that fund managers are doing what they're supposed to do they are the in house watchdogs they are paid very handsomely.
To how much policing investments.
The average at the largest funds was 260000.
Dollars a year for somewhere between four and eight meetings a year.
I think have amaze me is that they set their own -- They sit there -- there's no accountability all you know there's tremendous amount of shareholder democracy that we've seen since the whole Enron Europe.
Has not touched mutual fund boards at all there are no annual meetings they're only rarely elections the shareholders of the funds.
Have almost no opportunity to express themselves as to whether they want -- particular director on the border not.
So they're running about twelve trillion dollars worth of our money these mutual fund managers.
Is there any evidence to suggest maybe these directors could've caught something that they didn't that hurt investor.
Well the biggest concern is you know there there have been good scandals from time to time about some kind of malfeasance that mutual funds the real issue was cost.
He's as you said hold our retirement savings from the more that people rely on.
41 k's and IRA's rather than traditional pension funds the more important is that their money gets the best possible return.
And the concern of the critics is that they don't police and hold down the cost that the mutual fund management companies charge way too much.
And -- that is money right out of the pocket of retirees.
You know some people say that's the way to pick a -- is to simply start by looking at the fees.
And taking out all the high -- funds absolutely and -- I'll tell you something fastening off the record -- number of board directors and people who provide services for boards told me.
They would never invest in an expensive actively managed funds they can't understand the people do it and that they would go for the low cost funds particularly index -- -- What they -- until why do you offer them my -- -- begs the question.
Here's -- number I found fascinating 61% of the stock funds lagged the S&P 500 over the past five years -- in addition to having -- These you're also seeing underperformance what does -- tell you.
It tells you that these are tremendously profitable and so most of the advertisements that you see are often dedicated to active funds.
And investors.
Have all the information available if they know how to go through.
A lot of -- documents which -- -- often the case and so they just look at the return figures which can be for a selected period and they go forward but that that those.
Costs really take a huge bite out of.
What are nuns looking to -- -- and they're barely skimming at that strained at best well.
This is funny the statistic 15% of these mutual fund directors state twenty years or more.
That is like -- -- cure that's like having college professor you come back year after year whether you perform well are not gonna.
Perhaps well there's there's no check there's no accountability there's and we annual meetings I said so.
They can stay in the board they set their own pay there's no want to tell them that they need to move off the board and make room for somebody else.
And we're paying for Alice this comes right out of your returns -- out of your retirement mr.
James thanks for coming out tonight great story and Smart money magazine we appreciate your.
