Why I Sold Out of My Actively Managed Mutual Fund

Hello everyone! It’s Jacob! I am happy to report that I am emerging from the dead of my first semester PhD in Chemical Engineering program to bring you my first post since 24-Aug-2010 (see link below for the last post I authored).

Let’s get up to speed with each other shall we?!

• Since my last posting, we had the pleasure of featuring 15 great guest posts.
• My Personal Finance Journey hosted the 247th Festival of Frugality.
• On Nov 1st, the good folks over at Yakezie.com put up with hearing the gruesome details about how I started this blog.
• Since my last posting, we have moved from an Alexa ranking of 569,000 to 496,000.
• More importantly, we have had ~5,000 more visitors read and benefit from the site! This is great news!
• I have a backlog of >100 post topics that I am eager to unload for the blogosphere! You can’t shut me up forever! haha

Selling My Actively Managed Mutual Fund Holdings

Along with having many changes to my personal finances since quitting my full time engineering job and returning to graduate school (making 67% less), one of the actions steps I have taken is that I sold my holdings in my only actively managed mutual fund (CGM Focus Fund), and rolled over the Roth IRA assets to passively managed index funds with Vanguard.

This was done as a follow up to some research I performed in writing the post below about why following hot fund managers does not work. See the link below for more information.

Why Following “Hot” Mutual Fund Managers Does Not Work

In the previous post, I had mentioned that I needed to perform some additional research in a future post before making the final decision.

However, this semester when I really got down to thinking about it, I realized that I was only postponing the inevitable: eventually, I would have to concede my loses, acknowledge my mistake, and sell my holdings in the actively managed mutual fund.

Thinking further about this predicament, I realized that this is a very common mistake that investors make. That is, they fail to acknowledge their losses (especially with individual stocks), sell their holdings, and move on with life! And, here I was falling for it!

Counting Up My Losses

As a starting point, I should reveal that my holdings in the CGM Focus Fund totaled ~$4,400. Shameful, I know to hold so much money in an actively managed mutual fund! But, bear with me please!

• From the time when I bought the CGM Focus Fund in December of 2007 until 29-October-2010 when my holdings were sold, the fund decreased 48.33%. Fun!
• During this same time, the S&P500 index decreased only 22%. Fantastic! I am feeling better all of the time.
• Furthermore, the Vanguard S&P500 index fund has an expense ratio of 0.18%, while CGM Focus fund has an expense ratio of 1.23%.
• Adding it all up, assuming that I invested all of my assets at once, my money was worth only $2,112 in the CGM Focus Fund vs. $3,405 if I had invested my money with Vanguard’s index fund.

This is quite an astounding difference, isn’t it!?

What’s more is that another excuse that I kept coming up with was that the asset transfer process would be cumbersome, and it would be time consuming. It was just the opposite, actually.

It only took two phone calls (one to Vanguard and one to CGM to set up the asset transfer). Additionally, there were no fees at either end to transfer the funds.

I feel safe to know that my funds are no safely resting in a Vanguard Short Term Bond Index Fund (since rebalancing to my asset allocation percentages dictated that I invest more in fixed-income securities due to the recent market upturn).