SteadyOptions is an options trading forum where you can find solutions from top options traders. TRY IT FREE!

We’ve all been there… researching options strategies and unable to find the answers we’re looking for. SteadyOptions has your solution.

Why not do it yourself?


If you have been trading for a while, for sure you have heard that most traders under-perform, including the so called professionals, the big funds, the "smart money". As it turns out, I had nothing better to do and decided to take a look at how some of those pools of institutional money performed in 2015 when all was said and done.

Sorry to disappoint, nothing new to reveal.

Let's start with the most criticized villains: hedge funds.
According to Barclay (tracking more than 2,000 hedge funds), the average Hedge Fund return in 2015 was +0.04%. Of course, this is before management fees and everything else. More details here.

It is a common practice in the industry to use the 2-20 scheme, meaning 2% management fee on your assets, plus 20% of your gains in the year. Needless to say, the average guy lost money.

Let's move on to the second most criticized villain: mutual funds
For mutual funds I decided to go with a sample of one of the most representative institutions when it comes to wealth management: RBC. I took a look at some of the most popular funds, those with catchy words in the name like "Balanced", "Value", "Global", "Income", "Growth".

RBC Balanced Fund:
2015 return: +0.8%.  
Avg since inception: +6.4% annually.
Management Fee: 2.16%. 

RBC Global Balanced Fund:
2015 return: +4.1%  (Hey not too bad!! )
Avg since inception: +4.2% annually. ( Oh, well :( )
Management Fee: 2.21%

RBC Monthly Income Fund:
2015 return: -3.4%.  
Avg since inception: +6.8% annually.
Management Fee: 1.20%.

RBC North American Growth Fund:
2015 return: +1.6%.
Avg since inception: +7.5% annually.
Management Fee: 2.09%

RBC North American Value Fund:
2015 return: -0.3%.
Avg since inception: +7.3% annually.
Management Fee: 2.10%

If we average out those 2015 returns, we have +0.56% among these 5 big pools. Never forget the average management fee is around 2% per year.

Since inception, they average about 6% annual returns (not too bad), but the 2% management fees turn it into 3% to 4% real returns after fees.....so when you factor in inflation,... yes, you guessed it.

Finally the least hated, in fact most times venerated index funds:
I just kept it simple with the super popular VTI (Vanguard Total Stock Market ETF) VTI's price at the beginning of the year was 105.94 vs 104.34 at the end of the year. With the addition of distributions it finishes the year slightly positive. 

According to Morning Star the total return in 2015 was +0.36% for VTI.

Image result for investing numbers


Not beating the simple strategy of holding SPY is something I won't criticize in this article. I have talked about that before. I myself have under-performed the market in some periods in the past. However, one thing must necessarily be said:

If these funds were delivering inferior returns BUT were protecting investors from severe corrections, then we could argue that they have a mission, that they play a vital role: They under-perform in exchange for protecting investors from serious corrections. It's the price to pay in order for our money to be safe. Yet, that's generally very far from being true. Most mutual/hedge funds generally under-perform during market rallies, and over-correct during market sell-offs. In addition, you are not protected against crashes, looking at the history of most mutual funds in 2008, they corrected between 30% and 60%, some even more. And I'm saying "most", not "all" simply because many mutual funds that we have today hadn't been born back then.

This naturally leads people to think: "what the hell! I'm going to passively follow an index". It seems to be slightly better than giving your money to a Mutual Fund or Hedge Fund, but not by much. The index will not save you from the corrections and bear markets. And the saddest part of the story is that you are guaranteed to ALWAYS under-perform. It is mathematically impossible to match the index that you follow, whichever it is. Why? Well, to start off the vehicles you invest in in order to follow the index have a management fee. Yes, usually small, but still a management fee. That alone is enough to guarantee under-performance in respect with the index. Then you also have execution slippage, Bid-Ask differential. That, eats up a little more. Finally, you have trading costs, a.k.a commissions you pay your broker for facilitating the actual buying and selling of shares. When all this is included, index followers usually under-perform the index by 1% to 2% in the long run.

As of this writing, VTI's average annual performance since inception is +5.88%. As explained earlier, the investor is guaranteed to be getting less than that.

Why not do it yourself?
Saying that nobody will take care of your money better than yourself is so cliche. But man it is so damn true.

Yes, most individuals under-perform, but most individuals do not put the effort to improve their skills, to learn solid trading approaches with better historical risk-adjusted returns.

Most people under-perform, but you are not "most people". Imagine what this world would be if every successful person stopped fighting and improving just because "the majority fails". What would Lebron be if at some point he'd stopped to think: "Why bother? Most aspiring basketball players don't make it to the NBA". What if Joe Di Maggio had said: "Screw it. I'm not even going to make the effort. Most baseball players never get to play Major League Baseball". Every successful entrepreneur, every successful musician, every successful writer, surgeon, engineer...Mathematically speaking, they all started with huge odds against them, just based on the results of the general population. 

Most people are lazy by nature, and prefer to invest their time browsing pictures of hot photo-shopped girls on Instagram. You are not like "most people". Even if you browse for some hotties on the Internet, the single fact that you are reading this site demonstrates you are not like "most people". After all, it takes a special kind of liver to be able to read this annoying site for a prolonged period of time.

Why not grow your money yourself, with calculated risks and action plans instead of the constant nervousness produced by the concerns that the markets will always crash tomorrow and I have no idea how the hell my fund manager will react? Why significantly reduce your returns due to paying someone for the privilege of this constant fear?

The numbers, the numbers don't lie.

 

This article was originally published here by Henrik aka The Lazy Trader. Henrik trades Iron Condors, Credit Spreads, Dividend Growth investing, Cash Secured Puts, Covered Calls, ETF Rotation, Forex. He likes to share his passion with others, educate and learn something from everybody. You can follow Henrik on Twitter.

What Is SteadyOptions?

Full Trading Plan

Complete Portfolio Approach

Diversified Options Strategies

Exclusive Community Forum

Steady And Consistent Gains

High Quality Education

Risk Management, Portfolio Size

Performance based on real fills

Try It Free

Non-directional Options Strategies

10-15 trade Ideas Per Month

Targets 5-7% Monthly Net Return

Visit our Education Center

Recent Articles

Articles

  • Types of Volatility

    Are most options traders aware of five different types of volatility? Probably not. Most only deal with two types, historical and implied. All five types deserve some explanation and study.

    By Michael C. Thomsett,

    • 0 comments
    • 138 views
  • The Performance Gap Between Large Growth and Small Value Stocks

    Academic research suggests there are differences in expected returns among stocks over the long-term.  Small companies with low fundamental valuations (Small Cap Value) have higher expected returns than big companies with high valuations (Large Cap Growth).

    By Jesse,

    • 0 comments
    • 373 views
  • How New Traders Can Use Trade Psychology To Succeed

    People have been trying to figure out just what makes humans tick for hundreds of years.  In some respects, we’ve come a long way, in others, we’ve barely scratched the surface. Like it or not, many industries take advantage of this knowledge to influence our behaviour and buying patterns.

    By Kim,

    • 0 comments
    • 244 views
  • A Reliable Reversal Signal

    Options traders struggle constantly with the quest for reliable reversal signals. Finding these lets you time your entry and exit expertly, if you only know how to interpret the signs and pay attention to the trendlines. One such signal is a combination of modified Bollinger Bands and a crossover signal.

    By Michael C. Thomsett,

    • 0 comments
    • 461 views
  • Premium at Risk

    Should options traders consider “premium at risk” when entering strategies? Most traders focus on calculated maximum profit or loss and breakeven price levels. But inefficiencies in option behavior, especially when close to expiration, make these basic calculations limited in value, and at times misleading.

    By Michael C. Thomsett,

    • 0 comments
    • 398 views
  • Diversified Leveraged Anchor Performance

    In our continued efforts to improve the Anchor strategy, in April of this year we began tracking a Diversified Leveraged Anchor strategy, under the theory that, over time, a diversified portfolio performs better than an undiversified portfolio in numerous metrics.  Not only does overall performance tend to increase, but volatility and drawdowns tend to decrease:

    By cwelsh,

    • 1 comment
    • 578 views
  • The Best Chart I’ve Seen in 2020

    The best visual aids for learning are often very simple. The chart in this article was created by Paul Merriman, using data from Dimensional Fund Advisors. I primarily use Dimensional Funds in building portfolios for my clients. There are many takeaways from this chart, and I’d like to share a few thoughts that stick out most to me.

    By Jesse,

    • 0 comments
    • 586 views
  • Traditional or Roth Retirement Account?

    When US investors save for retirement, there are many important decisions that have to be made including which investments to use as well as which type of accounts to fund. Tax favored retirement accounts such as 401(k)’s and IRA’s should be utilized to the maximum extent possible because of the opportunity for tax advantaged growth.

    By Jesse,

    • 0 comments
    • 500 views
  • My Favorite Investing Books, Blogs, Papers, and Podcasts

    There are so many excellent sources of investment education available today that I thought a short post about some of my personal favorites could be beneficial. Below are different forms of content that have been particularly impactful to my investment philosophy, and they are not in any specific order.

    By Jesse,

    • 0 comments
    • 957 views
  • Go For Gold! The Business Behind The Dazzle

    The price of gold is often in the news—sometimes it's rising, and other times it's dropping but for the most part, it has been on a steady increase for many years. It is certainly worth more now than it did twenty years ago. When its price is on the rise, we may have thought about the benefits of selling our gold for profit and making some passive income from it.

    By Kim,

    • 0 comments
    • 539 views

  Report Article

We want to hear from you!


There are no comments to display.



Create an account or sign in to comment

You need to be a member in order to leave a comment

Create an account

Sign up for a new account. It's easy and free!


Register a new account

Sign in

Already have an account? Sign in here.


Sign In Now

Options Trading Blogs Expertido