| About Us | Newsletter | Youth Support | Career | Activities | Contact |

Newsletter

2014 5th Edition (Other Editions)

MUTUAL FUND ROULETTE

Some consider the stock market to be a genteel form of gambling. The rise and fall of the market and such terms as "market crash" and "black Monday" might give weight to these suspicions. However, when individuals start to refer to "investing in the lottery" we must give consideration to reality rather than phraseology.

There is no question that some people stay invested in savings account rather than in stocks, because of the perception that securities are a gamble.

THE CASINO ODDS

If your money is "invested" at blackjack or the pass/don't pass option of the dice tables, your odds are about 49%. At Roulette, betting on odds or even, black or red, you have odds of about 48%. In other words on these bets, you have just under an even chance of getting your money back.

On the other hand, the slot machines offer a payback of about 10% - meaning you'll lose money nine of ten times. Most other casino wagers have odds somewhere in between the slots and roulette. Of course, the reason casinos make so much money is that gamblers do not place a single wager. They keep on betting and the cumulative effect of the odds working against them soon becomes overwhelming.

THE MARKET ODDS

Over one ten year period, from 1988 through 1997, the average return on "risk free" certificates of deposit was 5.91% - which disregards a few institutions that failed and whose certificates were bailed out by the FDIC with little or no interest having been credited.

Chicago-based Morningstar, Inc. keeps track of more than 95% of all mutual funds invested in the local and international markets. This includes more than 400 stock funds and 175 bond funds that have been in operation for more than ten years. Let us first see how they have performed over the same ten-year period:

Conclusion: the odds were more than 90% that any mutual fund selected would have exceeded the return of the "risk free" certificates of deposit. The odds with bond funds were equally good - 91% over the same ten years. If one excludes the gold-based mutual funds, the odds of success with stock-based mutual funds are even better.

In fact, the odds are greater of having earned 15% per year over the preceding ten years than they were of losing money!

CHARTING THESE MARKET ODDS

Expressed in gambling terms, the odds were over 95% of exceeding a return of 8% and almost miniscule of having a long term loss. If all gamblers understood this, there might be a lot of casino closings - and even more mutual fund investing!

Sources: Investment Performance Digest, 2000 Edition; Morningstar, Inc.

Mutual Fund shares are not deposits or obligations of, or guaranteed by any depository institution. The value of the shares will fluctuate so that when redeemed, shares or units may be worth more or less than the original cost. Past performance does not guarantee future results. Please read and understand the prospectus for a mutual fund before investing.