A few weeks ago, I was on vacation in Indian Rocks Beach, Florida. It was amazing. Thank you to my in-laws for putting it all together. We hadn’t been on a true week-long, family vacation since 2012. In the last seven years my lovely wife Kendall and I had done the following, making it a tad difficult to take a vacation:

  • June 2012: we bought a house and moved into it.
  • October 21, 2012: we had our first baby, Astrid.
  • December 2012: I left Edward Jones and started my own independent firm.
  • Fall 2013: we found out we were pregnant again. It was at this point I had my very first clinical panic attack. That was a real treat.
  • August 16, 2014: we had our second baby, Murphy.
  • September 2015: we found out we were pregnant again. With twins. (OMG)
  • Early spring 2016: we bought a van.
  • April 15, 2016: the twins were born (Clarke & Crosby)
  • June 2016: we sold our three bedroom ranch and moved into a new house.

I think you get the picture. From a period from October 2012 until recently it’s been a wild ride. It’s been both challenging and rewarding. I’ve been overwhelmed with anxiety, fear and joy on a weekly, if not daily, basis. Remember what Jimmy V said during his famous speech at the ESPY awards in 1993? No? Luckily for you, I do:

“There are three things we should do every day. If we do this every day of our lives, what a wonderful day. Number one is laugh. You should laugh every day. Number two is think, you should spend some time in thought. Number three, you should have your emotion moved to tears. Whether it be sadness or joy. If you laugh, you think, and you cry, that’s a full day. That’s a heck of a day.”

That basically sums of a lot of my days the last seven or so years. Actually it fairly accurately sums up most of my days.  

I promise I’m going somewhere with this.

While I was on vacation, attempting to relax, I kicked back with a financial publication. It caught my attention because on the front of it, there was an article that featured a mutual fund that had reportedly smoked the S&P 500 over the last three years, five years and ten years. Considering I have written an entire book on this subject—available late summer/early fall 2019—I was immediately a bit suspicious of those performance numbers. Statistically speaking, this is nearly impossible to pull off for any mutual fund for a long period of time.[1] During one year? Okay, sure. It happens. But over ten years? Yeah, I’m going to need to see some more proof of that.

I dug into the article. Then I became even more suspicious. The mutual fund had large companies in it such as Caterpillar, Apple, Boeing, and Home Depot, as well as mid-size companies such as Twitter, Dollar Tree, and Church & Dwight, who makes Arm & Hammer, and even a few small-size companies such as Brink’s and GNC Holdings.

Here’s the rub.

This fund was being compared to the S&P 500 Index. Great Rockie, but who cares? Well I do, and so should you. The S&P 500 is an index comprised of the 500 largest companies in the U.S. It doesn’t have small cap stocks in it. It doesn’t have mid cap stocks in in. It is widely accepted as the best barometer of domestic large cap stocks.

Mid cap and small cap stocks generally carry more risk than large cap stocks. By and large when an investor takes on more risk, he or she is usually rewarded with more return. That’s the point of taking on more risk. You’re hoping to make more money. If that wasn’t the case, who would do it?

Okay, now I was starting to understand why this mutual fund had much better numbers than the S&P500 over all those time periods. It was taking on much more risk.

After blabbing on for 600 words now, here are my two main points:

  1. Be a little suspicious when you see that a mutual fund has smoked an index such as the S&P 500 or the Dow Jones Industrial Index like a $10 cigar over a long period of time, because statistically speaking, that’s rare.[2]
  2. If you are considering buying a mutual fund, ask me, ask your financial advisor, or ask one of the hundreds of brilliant and ethical financial planners I see on Twitter every day for a proper benchmark/index comparison of a mutual fund you’re considering. We’ll tell you the real story, good or bad.

Performance numbers can be misleading. Performance metrics can be manipulated to tell almost any story the author desires. Be careful out there!

Important disclosure

No, I wasn’t able to relax while reading that article. I got all fired up for an hour or two. Luckily for me and everyone involved, I was able to chill out and enjoy the rest of the day.


[1] Source: https://www.spglobal.com/_assets/documents/corporate/us-spiva-report-11-march-2019.pdf

[2] Source: https://www.spglobal.com/_assets/documents/corporate/us-spiva-report-11-march-2019.pdf

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