Are Mutual Funds A Good Investment?

In this quarter’s Investing Insight, I discuss why I believe Mutual Funds are bad investments in general. Mutual funds are the sacred cow of the largest investment firms, believe me, I do not make any friends among investing peers when talking about this topic. However, I have always believed that investment decisions should not be driven by the status quo within the industry, but that any investment approach should be able to stand up to the rigors of evidence-based analysis.

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High Returns From Low Risk

Fair warning, I am confident the topic I will cover today will blow your mind and hopefully cause you to question much of what you have learned about investing. I am being perfectly serious. What I am about to show you, flips the common investing wisdom upside-down. The concepts I lay out in this Investing Insight are at the foundation of my investing philosophy and the driving force behind 3Summit’s innovations in portfolio design and management. I hope the investing secrets I am going to share with you today inspire and inform your investing process as much as they have mine.

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Diversified Portfolios – A Common Source Of Investor Displeasure

Properly diversified portfolios are at their best during periods of high volatility and market uncertainty. Despite the numerous positive aspects of taking a diversified approach to investing, it can be a major source of investor frustration. Expectations are everything, it is important to have realistic expectations for diversified portfolios by understanding how they are designed to behave during varied market conditions.

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Quantitative Investing – Systematic Decision Making

Quantitative investing is such a powerful investing tool because the process enforces a rigid and repeatable framework for investment decision-making, additionally, quantitative investment strategies can be used to find and generate unique sources of returns. Quantitative investing can exploit the universal behavioral vulnerabilities of market participants that manifest themselves in financial markets into a unique source of returns.

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Multi-Dimensional Diversification – The Five-Star Free Lunch

Diversification is the most powerful portfolio management tool an investor has to successfully and efficiently grow wealth over the long-term. However, just like the real cost of a free lunch, not all forms of diversification create equivalent value. Imagine a free lunch at a McDonalds versus a five-star restaurant. Designing a portfolio using the most advanced techniques of diversification makes it possible to reduce the risk of an otherwise similar portfolio in more than half, while maintaining the same expected returns.

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