A mutual fund record...
A mutual fund record... Doc's advice is catching on... More good news for China... Tomorrow's big announcement...
Editor's note: In Friday's Digest, we published an error in describing the fourth test of a great investment. The fourth test is based on net tangible assets – tangible assets minus all long-term debt. We apologize for the error. You can find the corrected version here.
Mutual-fund giant Vanguard has done what no other asset manager in history has done before...
According to the Financial Times, the company pulled in an all-time-record $215 billion of new investor money in the U.S. last year. And through the first five months of 2015, the company is on pace to best that record by an incredible 40% this year.
Vanguard is benefiting from the increasing popularity of low-fee index funds. From the FT...
The Fidelity era, when money poured into equity funds run by star stock pickers, has given way to a Vanguard era in which the most popular funds are those with rock-bottom fees, many of which do nothing more than track the market.
"It is phenomenal that a single company could represent almost 20% of the U.S. mutual fund industry," says Michael Rawson, a Morningstar analyst. "But they have done it through offering products that are consistently lower cost than other funds. More and more investors understand that the less you pay, the more you keep."
Retirement Millionaire editor Dr. David "Doc" Eifrig has been warning his readers about the hidden costs of mutual funds for years. In the latest issue of Retirement Millionaire, Doc reviewed why keeping investment fees low is one of the three most important things you can do to maximize your retirement savings...
Hidden fees pervade the financial industry... For example, as of 2013, the median overdraft fee when you go below zero in your checking account was $30. The banking industry collected $31.9 billion of those fees that year.
The fees on fund investments are even worse. The fees always look small to the untrained eye. A mutual fund can easily charge 2% or 3% of assets without looking too expensive. When the percentages are that small, it can seem like it's not worth your time to fret over fees. But that's completely wrong.
Doc showed how even a small difference in fees can make a huge difference in your long-term returns. More from Retirement Millionaire...
Consider an investor who saves $5,000 a year, earns 8% in investment returns, and pays a 2% annual fee. Over 40 years, he amasses $786,000. If he cut that fee to 1%, he would finish with $1,045,000.
Think of how hard you work to save $5,000 every year for 40 years. It's not easy. No matter how much you earn, life gets expensive. Over all that time, you set aside $200,000.
But here's the catch, you can earn an additional $259,000... by just spending five minutes controlling the fees on your funds. That's easy money.
And contrary to popular opinion, choosing a low-fee fund doesn't mean you're sacrificing potential returns. When it comes to mutual funds, cheaper is usually better, too. Doc explains...
The cheapest funds in the game are index funds. Index funds don't have a Wall Street trader behind them, trying to outcompete everyone else and beat the market. (The majority of the smart guys fail.) Rather, index funds follow simple rules designed to help them track the overall performance of a particular asset class, like U.S. stocks or Treasury bonds.
Most "actively managed" funds (those with a manager trying to pick the best stocks) underperform the market year after year. In fact, 96% of actively managed mutual funds fail to beat the market over a sustained period.
That means you don't have a 50-50 chance of picking a "good" fund or a "bad" fund... It hardly even matters which one you pick. The vast majority are bad and won't beat the market.
On the other hand, index funds don't need to pay superstar managers or an army of analysts. Ironically, they keep costs extremely low and provide better performance.
Today's news suggests investors are finally catching on to Doc's advice. If you currently own mutual funds in your 401(k) or other retirement plans, we suggest you take a closer look at the fees you're paying today.
And if you're looking to earn as much money as possible in your 401(k), be sure to check out the June 2015 issue of Retirement Millionaire. Doc says readers who follow his simple plan can boost their lifetime returns by hundreds of thousands of dollars with just a few quick steps. (Learn more about a risk-free subscription for just $39 right here.)
Low fees aren't the only reason Vanguard has been in the news recently...
The company announced last week it will be adding mainland Chinese stocks – known as A-shares – to its flagship $69 billion emerging-markets fund. From Bloomberg...
China A-shares will represent 5.6% of the benchmark index tracked by the Vanguard Emerging Markets Stock Index Fund... The exchange-traded version of the fund – the Vanguard FTSE Emerging Markets ETF – will also include mainland equities. The fund will follow a transitional index unveiled last month by FTSE Group.
This news won't surprise regular Digest readers... As we've mentioned, China is going to great lengths to open its market to foreign investors. This move made Vanguard the first major emerging-market mutual fund to include mainland Chinese shares. But according to reports, it was made in anticipation of an even bigger announcement tomorrow...
As Steve Sjuggerud explained in this morning's DailyWealth, "On June 9, shortly after 5 p.m. Eastern time, MSCI – the world's leading provider of global stock market indexes – will announce whether or not China will start to be included in its indexes."
Chinese stocks marched higher in anticipation of the big news... The Shanghai Composite Index eclipsed 5,130 today, closing at its highest level since January 2008.
MSCI's decision has massive implications for Chinese stocks. The country boasts the world's second-largest stock market, worth more than $9 trillion – behind only the U.S. – yet until now, it hasn't been included in MSCI's popular Emerging Markets Index (EEM). As MarketWatch noted this morning...
MSCI Inc. will announce whether it will welcome China's top yuan-denominated stocks into its extremely influential Emerging Markets Index tracked by a mountain of roughly $1.7 trillion in assets worldwide.
Last June, in its annual review, MSCI decided not to include China, citing that it was too difficult for foreign investors to buy Chinese stocks. That prompted China to loosen regulations. Steve was all over this story when it first broke. As he explained in the October 27 DailyWealth...
New regulations are about to come into effect that make it easier for foreign investors to buy Chinese "A" shares (just like we saw on August 25, 2006). It's called the Shanghai-Hong Kong Stock Connect. It will allow foreigners to buy local Chinese stocks through Hong Kong, and it will allow local Chinese investors to buy certain Hong Kong stocks.
Despite China's efforts in the fall, Bloomberg noted that foreigners still own less than 6% of A-shares. If MSCI decides to include China tomorrow, that could change quickly.
Regardless of tomorrow's decision, Steve says MSCI will approve China sometime soon... and this will ultimately cause hundreds of billions of dollars to flow into Chinese stocks over the next few years.
Incredibly, tomorrow's MSCI announcement isn't even the biggest news on China's calendar right now...
Regular Digest readers know China is lobbying to add its currency (the "yuan") to the International Monetary Fund's ("IMF") currency basket. Currently, the IMF only includes the U.S. dollar, euro, yen, and British pound. But in October, the IMF will meet to decide whether to include the yuan. If it does, that would cause the amount of yuan used in global trade to skyrocket.
That's why Steve prepared a presentation detailing how he believes the October announcement will unfold... and what it means for investors. Even if you aren't interested in Chinese stocks or the yuan, Steve says this announcement has serious implications for every investor. You can watch Steve's presentation for free right here.
New 52-week highs (as of 6/5/15): eBay (EBAY) and Euronav (EURN).
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June 8, 2015