by Dan Wiener | March 10, 2008 5:09 am
Too many Vanguard investors believe their funds carry little if any risk, at least over the long haul. But nothing can be further from the truth.
What Vanguard management doesn’t want you to know is that many Vanguard mutual funds are extremely risky. In fact, they could spell disaster for your portfolio if you’re not careful.
So really, truly, how much can your fund lose?
Vanguard won’t tell you. Big losses are often masked because they straddle fixed quarters and calendar years. Losses from one month this quarter can be disguised by the remaining months’ figures.
Morningstar won’t tell you. Unlike The Independent Adviser for Vanguard Investors[1], Morningstar is always chasing a long way behind reality because they’re rating 5,000 funds in rotation. It took Morningstar 22 months to catch up to what was happening at Capital Opportunity. In that time, we had already made a nice 98% profit.
I will tell you. Our proprietary Maximum Cumulative Loss (MCL) formulation shows the worst “real life” actual loss every fund has experienced in history. I also tell you how many months—or years—it took to recover from that loss.
What this means is that one simple number tells you what a fund’s absolute greatest loss has been during any specific period. So you know precisely how risky the fund is. It’s especially helpful to use when you’re comparing Vanguard mutual funds to decide which ones to buy—or sell.
For example, while Value Index looks good with an annualized return over the last 5 years of 6.7%, our Maximum Cumulative Loss indicator flashes an urgent warning signal. It has the potential to lose 39.1%! Many investors are shocked to learn that they could lose so much in a “safe” value fund, or that it could take over 2 years to get even from such a loss. (See also: “9 Simple Steps to Profiting at Vanguard[2].”)
If only you had known this, you might never have invested. But Vanguard won’t tell you. And other ratings systems never ask the tough questions.
First off: Forget conventional wisdom. It can get you into deep trouble when you’re investing with Vanguard.
If you want bigger Vanguard profits, you do NOT have to take on bigger risks. But Vanguard really doesn’t want you to know this. They want you to keep pouring money into their most popular mutual funds, which brings us to the second rule of Vanguard investing: Forget indexing.
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Vanguard became famous for indexing[3], but index investors do not become as rich as my members do. What’s worse is index investors have no idea how risky those funds can be. And risk is the enemy. Controlling risks is probably one of the top reasons you’re investing in mutual funds in the first place.
The big, famous Index funds at Vanguard have chronically underperformed over the last few years, exposing conservative investors to the worst risks of bear markets.
From 2000 to 2005, Vanguard’s index funds were down a collective 13.3%. Meanwhile, our Vanguard “Best-of-the-Best” picks have beaten the indexes more than FIVE-TO-ONE for the last 26 years.
On average, our picks have returned 19.7% a year, while the indexes have trailed behind, returning just 12.6%. So if you put your faith in indexing, it’s like deciding you’d prefer to be HALF as wealthy. (Be sure to check out: “Winning With Mutual Funds[4].”)
But Vanguard knows investors who plunk money into an index become “passive.” Their money goes “dead.” And Vanguard never has to worry about these clients getting antsy.
Because many index funds have little value orientation, it means you’re invested in lots of high-risk growth stocks, like tech and banks. These are often high P/E, very interest-rate-sensitive stocks. And with the Fed trying to continue the subprime crisis AND fight inflationary pressures, these stocks are taking a beating. Index funds are very vulnerable right now.
Vanguard has a slew of index funds with growth objectives, the 500 Index among them. But if you’re looking for capital appreciation and you’re indexing to get it, you’re making a costly mistake, one that traps the average Vanguard investor time and time again and costs them up to 40% in profits year after year.
Never be blindsided by loss again! You can check the MCL of ALL Vanguard funds simply by accepting a risk-free trial to Dan Wiener’s Independent Adviser for Vanguard Investors[5] today. As a subscriber, you’ll receive monthly issues full of specific, actionable advice, the best funds for your money, the funds to avoid, weekly telephone hotlines, access to the 24/7 subscriber website, up to 6 FREE reports and more—all backed by Dan’s personal “Double Your Returns” guarantee. Click here now for more details on this special offer[6].
Source URL: https://investorplace.com/2008/03/vanguard_mutual_funds_nasty_secret/
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