Do You Want to Retire Rich? Then Read This…

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Mutual fund managers messed the bed again…

A not-so-surprising new study released by S&P Global reveals that 9 out of 10 U.S. equity funds failed to beat the market over the past year.

Those billions in management fees investors paid to Ivy League-educated fund managers to outperform the market? Complete waste of money.

Alas, this is nothing new.

For the past 14 years, most U.S. equity fund managers have underperformed all benchmarks – an organized fraud that is perhaps the single biggest scam ever pushed onto ordinary people and their savings.

And that’s why millions of average investors have abandoned managed mutual funds for passive index funds – a smart move… or so they thought.

But what most investors don’t realize is that when they make this shift, they’re going from the frying pan into the fire. And the results will destroy your retirement.

The Wrong Remedy

It’s plain as day: Managed equity mutual funds are getting crushed…

The Financial Times reports that roughly $330 billion flowed out of actively managed U.S. mutual funds through July 31. And July was a record month for outflows.

During this same time period, $400 billion has flowed into passive funds that simply track an index.

That’s a freaking massive shift in assets.

You can’t blame investors. Fund managers are paid to add value and provide downside protection. But they clearly have no skill. They’re only in the game to wring fees from the ignorant masses.

No one should settle for this type of abuse. But the big problem here is that the passive index funds remedy proactive investors are seeking is pure disaster.

Sure, passive index funds may outperform actively managed mutual funds. But if you’re holding index funds when the next meltdown strikes… when the next black swan swims in… you’ll still be screwed.

How to Avoid a Devastating Mistake

Just as investors were “sold” the benefits of active management, they have now been “sold” the benefits of passive management.

Huge marketing campaigns have pitched low-fee index funds that track overall stock market performance and “buy and hold on” for the long term as the solution to managed underperformance.

This marketing strategy works great when markets go up and the bull looks like it will live forever.

But we’ve seen two 50% drops on the S&P in the last 15 years. The only reason the third has not yet appeared is due to QE, ZIRP, NIRP, and other central bank shenanigans that have unfolded in the shadows.

Consider this real-life scenario…

Imagine you’ve decided to retire at 65 years old. You’ve saved $1 million, which seems like enough to support you and your loved ones throughout your retirement years.

Suddenly, financial markets crap-out much like the 2008 crash, or even worse. And your retirement account loses 50% of its value in a matter of weeks or months.

Now you’re down to $500,000. And you begin withdrawing $60,000 a year to cover living expenses.

Even if we assume a generous growth rate of 8% a year (and what “buy and hold” model can guarantee that?), your portfolio won’t last too long.

You’ll run out of money by the time you’re about 80 years old!

What happens if you live another 10 or 20 years? You have no source of income. You’re dead broke.

Look, if you invest in stocks over a long period of time, you will experience market drops of 50% or more. Take that to the bank.

And it can be far worse than that. Remember the Nasdaq after the dotcom bubble? It dropped 77%.

The market has historically suffered a downturn of at least 50% every ten years or so. That means we are due…

And this could become a huge problem if those losses happen when you’re close to retirement with decent-sized nest egg. That’s because withdrawals will reduce the size of the account ongoing, making it impossible to catch up.

Think of it this way too: If the market drops 50%, your account will have to rise 100% just to go back to break even.

And if you’re withdrawing money to cover expenses, then the market will have to go even higher for you just to find break even.

Bottom line: Unless you expect to live forever (and have enough time to recover from downturns), buying and holding passive index funds is like taking free candy from the Devil.

Sadly, most people do not ask critical questions when it comes to money and markets. Many simply accept that you can’t beat the market and “buy and hold” is like Grandma’s soup – good for you.

That’s exactly how investors were drilled between the eyes with  devastating losses in 2008.

Trend followers don’t think that way. We don’t settle for misery.

Don’t just accept the propaganda that major media and government hacks bombard you with. Question all assumptions.

And know this: You really can outperform the passive index market world and protect your capital during market meltdowns.

Actively managed mutual funds and “buy and hold” are your worst options.

If you have a pulse, if you are still not fully brainwashed by the zeitgeist of government mind slavery, and if you still really want the chance to get rich and cover your retirement, trend following is not the only way to go – but it’s the damn best way.

Please send your comments to me at [email protected]. Let me know what you think of today’s issue.

Michael Covel
for The Daily Reckoning

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