There have been many changes over the 35 years I have been investing in mutual funds. I intended to divide those changes into the good, the bad, and the ugly. However, when I sat down to begin writing, I found many changes did not fit neatly into those categories.
Nonetheless, let's begin with changes that are mostly good.
In my early years, I was aware of only a few sources of information about mutual funds: the annual book on Investment Companies put out by Arthur Wiesenbeger and Company, the Forbes Mutual Fund Issue appearing in August, the periodical Fundscope, and occasional articles in Financial World. The explosion of information about mutual funds can be a bit overwhelming but it surely must be considered a good thing. Now, a massive amount of information on mutual funds is available with a few clicks on the web or a trip to the library or a bookstore. In the early years, I had to dig for bits of information about mutual funds; now I must dig through piles of information, much of little value to me. But certainly, all the information you need on mutual funds is available.
The increase in the number of mutual funds, in particular, no-load mutual funds is staggering. When I began, there were only a handful of no-load funds and one argument for buying load funds was that in certain categories of funds there were no good no-loads available. Now there are no-load funds in every reasonable category (and perhaps in some less reasonable ones as well). Certainly the availability of all these funds is a good thing, even if some of these funds don't deserve any attention.
One of the most significant changes in mutual fund investing is the introduction of "style analysis", dividing mutual funds into boxes based on asset size and growth/value styles. On balance, this is a very good tool. The major advance is the ability to easily compare a mutual fund to other mutual funds with a similar style. I once sold Mutual Shares, managed by Michael Price too early because I thought that asset growth was causing the fund to under-perform relative to all mutual funds, when, in fact, the fund performance was similar to other value oriented funds. Like many tools, style analysis can be over-used and mis-used. It seems unreasonable to me to fill a portfolio with a representative from every style box, or to penalize a respected fund manager because his fund changes boxes.
It is now possible to make massive changes in your portfolio with a phone call or a click of your computer mouse. This is certainly a good thing. However, my old practice of writing a letter and mailing it to the fund distributor had a certain advantage. I thought carefully for weeks before I made any changes. I have seen academics get into trouble because they responded too quickly on e-mail without thinking carefully. Thus, one fear I have is that in a market downdraft, too many investors will leap to their computers and sell making a bad situation worse. It could get really ugly.
The general area of fees is an area where the changes (or non-changes) seem mostly bad. The good change is that typical loads have actually come down from the early days of my investing. But the hodge-podge of share classes and fee types looks rather ugly to me. Vanguard has done an effective job of lowering fees, but outside of Vanguard and some index funds, fees seem headed up even as total assets increase as well. One issue that I find disturbing is that not all mutual fund expenses show up in the expense ratio. Formerly I naively assumed that the expense ratio counted all the expenses of the mutual fund. Now I have always preferred funds with low turnover ratios because high turnover ratios did not look much like "investing". Still, it is bothersome that expenses related to buying and selling stocks are not included in the expense ratio. I understand including such costs is not easy, but surely if there were a will there would be a way.
On balance the changes over my 35 years of investing have been good ones. Certainly the information and choices are now available for a sound, diversified and low-cost portfolio.
Email me comments or questions.