Wasting Wealth

The $10 trillion mutual fund ship is still very much afloat but sinking fast after investors have endured a bruising year with devastating returns and high capital gain taxes.

According to investment researcher Morningstar, Inc, “Out of almost 2,100 diversified retail U.S. stock mutual funds that are open to new investors, just 17 have generated positive returns during the past 12 months and year to date.”

In fact, “no mutual fund” investors have increased to 16% from 6% in just two years (2006-08).  According to a new study by Mass-based Cogent Research, it was found that established mutual funds investors presently retain an average of 40% of their portfolios in funds, down from 53% in 2006.

In total, mutual fund assets at $10.6 trillion on September 30 are down 8.7% from $11.6 trillion at the end of August.  Stock and bond funds posted net outflows of $63 billion in September, up dramatically from $12.1 billion in August, according to the Investment Company Institute in Washington.

“The economic downturn is accelerating a continuing move from mutual funds to alternative products, said Christy White, a principal at Cogent.  “This is a perfect storm going on.”

In addition, mutual funds are plummeting each year with capital gain taxes shrinking their return on investment (ROI).

As a case in point, taxes took the largest bite ever out of taxable mutual funds in 2007.  It set a new watermark.  For the 2007 tax year, more than $24 billion—the highest capital gains tax shocker billed by the IRS in stock market history stunned mutual funds holders, according to Lipper, Inc, a fund research company.

Since substandard performance is the norm presently in mutual funds and recent tax break laws will sunset in 2010, it would be prudent for taxable mutual fund investors to keep and eye on one of the main drags on their performance: taxes.

Thus, buy and hold mutual fund investors incurring huge mutual funds losses has prompted them to take fund assets and plow them into CDs, Exchange Traded Funds (ETFs), annuities and the new bright star in the alternative investment horizon: the Unified Managed Account (UMA). Like other managed account strategies like the Separately Managed Account (SMA), the UMA rewards the knowledgeable investor with asset customization, professional money management and, most important: reduced tax liability.

SMAs and UMA’s are asset management building portfolio strategies managed by independent money managers under an asset based fee structure offered by financial advisors and other financial agencies.

The UMA is particulary attractive as an alternative investment over mutual funds because it underscores one of the most important in demand characteristic of the human psyche: simplicity.

The UMA is a fully integrated asset management system providing comprehensive investment management in a single account.  It removes the need for more than one account and combines all the assets into one account with a single registration.

Best of all, the UMA possessing all the positive aspects of the traditional SMA, can also encompress most other alternative asset management vehicles (e.g.: stocks, bonds, ETFs and more) in a client’s portfolio.

Again, the portfolio is arranged simply as one single account.

Don Wilkinson, owner of a wealth management firm in Newport Beach, CA—DFW & ASSOCIATES, can find all the details about UMAs and SMAs in a book.  The book entitled: “Stop Wasting Your Wealth in Mutual Funds…Separately Managed Accounts—The Smart Alternative” can be found on Wilkinson’s web site: www.wastingwealth.com and ordered at a reduced rate.  Visitors to the web site can also obtain a complimentary revealing report entitled “Building Wealth with Separately Managed Accounts.”  Wilkinson’s book can also be ordered on Amazon.com (http://www.amazon.com/Stop-Wasting-Wealth-MutualFunds/dp/1419520180/ref=sr_1_1?ie=UTF8&s=books&qid=1228399379&sr=8-1).