All mutual fund investors get an annual report, showing how much the fund gained or lost. You probably assume that your personal investment did the same.
But as it says in the song, that ain’t necessarily so.
How much you gained or lost depends on when you first bought the fund, when you added additional money and whether you sold any shares.
The difference is obvious if the fund soared for a couple of months, then took a tumble after you bought. The fund could still be up for the year while your personal account is down.
Usually, however, you can’t tell how differently you performed. Fund prices constantly zig and zag. You invest in regular or irregular amounts, without noticing whether you happened to catch more zags than zigs. Yet those are the prices that will dictate how much you earn.
In theory, your buying and selling pattern could give you a higher return than your fund reports. In practice, however, you’re likely to earn less, reports Dalbar Inc., a Boston-based financial research and publishing firm.
Dalbar found that investors in stock-owning mutual funds earned, on average, 10 percent less than the funds themselves, in each of the 12 years from 1984 to 1996.
If this is happening to you, you need to learn about it, fast.
In March, that message was passed to the mutual fund industry by Barry Barbash, head of the Securities and Exchange Commission’s division of investment management. He told them they ought to think about reporting their customer’s personal returns.
“It’s an investor-friendly idea,” Barbash told me in an interview. “As computer technology gets better, it gets harder for funds to object.”
But object they do at least, most of them do. Even Vanguard, an investor-friendly company, claims that personal-performance numbers would just confuse you.
Says Barbash, “Investors aren’t as dense as they’re sometimes portrayed. Give them information and be upfront with them and they’ll understand.” Amen to that.
Fidelity Investments said the start-up cost would be hugely expensive. And spokesperson Robin Tice called it a “new idea” that would have to be studied.
Fidelity has waltzed me around on this issue before. In 1993, I wrote that investors needed personal-performance reports. At that time, a Fidelity source told me the company was working on something like that. “We don’t want to tip our hand,” he said. “But we’ll soon be addressing these concerns.”
All rubbish, as it turned out. Fidelity has changed its story. I doubt it will address this at all unless forced to by regulation or competition.
Industry’s trump card is to call any personal-performance reporting “too expensive.” They’re on the inside; how can outsiders say they’re wrong?
In this case, there are witnesses. Two mutual fund companies currently provide the type of personal reporting Barbash has called for and both say it didn’t break the bank.
American Express Financial Advisors, formerly IDS, has made personal-progress reports available since 1991. The system cost $600,000 to develop, says Jeff Hovis, who worked on the software, and currently costs around $200,000 a year to run. That comes to about six cents per account, he says.
I’d pay six cents to learn how well my personal money had performed. It’s cheaper than buying a software program to do the job, and much cheaper than hiring an adviser to do it for me.
In January, the Kemper Funds added personalized performance information to its clients’ year-end statement. Jack Neal, president of Kemper Funds, called the set-up cost “not very significant” and the annual running cost, “immaterial.”
Neal thinks the larger fund families may already have enough data in-house to produce reports pretty easily. “I think most companies should be doing this,” he told my associate, Kate O’Brien Ahlers. Amen to that, too.
Did Kemper’s customers find their new reports confusing? Not as far as Neal can tell. “In fact, we received several positive calls, which you rarely get in this business,” he says.
In October, AmEx Financial Advisors will launch a pilot project, aimed at delivering these reports automatically, rather than on request.
A handful of brokerage firms, including Prudential Securities, now produce personal-investment reports. So do many planning and investment advisory firms.
Learning the truth shouldn’t make you fire your mutual fund, if your personal performance is poor. Instead, it should spur you to rework your investment style.
So what’s the problem for the funds? If you share my view that you should be getting personal-performance reports, write to your fund and say so.
Insurance you may not need
If you’re a homeowner, are you paying for mortgage insurance? And is that fee really necessary?
Mortgage insurance makes the payments if you default. Lenders normally require it when buyers can’t afford the standard downpayment of 20 percent.
But everything changes once you have 20 percent equity in your home. (Your equity is the difference between the home’s current value and all the loans against it.)
At that point, you’re generally entitled to cancel your coverage.
Your monthly mortgage bill should show how much you’re paying for insurance. The Mortgage Guaranty Insurance Co. in Milwaukee charges anywhere from $19 to $77 a month in the first 10 years for every $100,000 borrowed, then $17 in later years.
To cancel the coverage, you have to work through your mortgage servicer, which is the company that handles your monthly payments.
The servicer usually doesn’t own your loan. It has been sold to an outside investor, such as Fannie Mae or Freddie Mac, which purchase about 40 percent of the mortgage loans made today.
Some servicers notify you when you’re up for cancellation. California’s Legislature just passed a bill making cancellation automatic under certain circumstances.
In Washington, a similar bill passed the House of Representatives in April but currently faces opposition in the Senate.
What’s triggering legislation is that so many mortgage servicers stonewall your cancellation request. This unfairly forces you to keep paying for coverage you no longer need.
I haven’t yet heard of private insurance that can’t be canceled, if you’re paying the premiums out of pocket. If your mortgage servicer resists you, complain to the state insurance department and your U.S. senator.
What if the lender bought the mortgage insurance for you and bundled the cost into the interest rate you pay? That probably sounded like a good idea because it made your premiums tax deductible.
But in this case, your coverage can’t be canceled unless you pay off the loan or refinance.
Syndicated columnist Jane Bryant Quinn can be reached in care of the Washington Post Writers Group, 1150 15th St., Washington D.C. 20071-9200.