On April 26, 2020 at the Milken Institute in Los Angeles, California, at the Milken Institute Global Conference for 2006, the topic “Baby Boom — Baby Bomb?” was debated by Michael Milken, Chairman of the Institute, and Professor Jeremy Siegel, of the Wharton School, University of Pennsylvania. The debate was moderated by Paul Gigot of the Wall Street Journal.

This debate was of such significance as to be featured in BusinessWeek on June 5, 2020, in the article, “When Boomers Cash Out: A buy-and-hold legend sees tough times ahead.”

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Mutual funds are sold primarily on the basis of ‘performance’ measured by historical ‘total return’.

The famous Morningstar rating system is based on ‘total return’, in this case ‘risk-adjusted total return’ relative to funds of the same asset category.

The average American mutual fund investor is accumulating resources for retirement, say 20 or 30 years hence. The typical owner of mutual funds is unsophisticated and does not delve deeply into the significance of Morningstar ratings or total return figures.

The SEC allows promoters of mutual funds to trumpet historical ‘total returns’ as long as there is a disclaimer that “past performance is not necessarily indicative of future performance”.

A question worth considering is this: “Are investors being mislead by statistics on total return?”

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