We've traced the phone call, and it's coming from inside your portfolio!
Want to scare your nest egg? I've assembled a murderers' row of some of the most menacing mutual funds around. If you're squeamish, stop here, and don't read any further. Chicken ...
The Interest-Rate Shocker!
With interest rates at record lows, funds are particularly vulnerable to a spike in rates. To find out how risky a fund is, check its duration. The rule of thumb on duration says that you multiply the amount that rates rise by the fund's duration to get a rough idea of how much you'd lose when rates rise. So, a typical core bond fund like Vanguard Total Bond Market Index
But there are funds that have much greater durations and might have tempted the yield-hungry. The retail fund with the greatest duration is Rydex Government Long Bond 1.2x Strategy Investors
If you see these funds coming down the road, board up your house, and pull out an old transistor radio to listen to reports on the mayhem. Some funds just won't die. Apex Mid Cap Growth
Price risk is one of the big risks you run in investing in stocks. If you buy high P/E (other valuation measures work, too) stocks and they miss earnings estimates by even a small amount, look out below. The 2000-02 bear market was all about price risk--the higher the P/E, the bigger the losses. Today, there are three funds with P/Es above 30. There's ProFunds UltraSector Mobile Telecom
The Vampire Funds!
Some funds of funds layer on the fees, and they can suck the lifeblood out of your portfolio. With low bond yields and potentially GDP growth to come, you need every bit of return you can get. Nosferatu would admire the prospectus net expense ratios of Hatteras Alpha Hedged Strategies
The Taxman Cometh!
If you want to scare your accountant, buy a fund that makes money before taxes but loses money after taxes. We calculate a tax-cost ratio and aftertax return figure that assumes the highest tax rate. The tax-cost ratio tells you how much an investor would have paid out in taxes on an annualized basis, and the aftertax return is the pretax return minus the tax-cost ratio. We calculate aftertax returns as though you held the funds through the period and sold them at the end of it. For our purposes, I'll use the presale figures. Click on the tax tab for a fund to see all the gory details.
Some funds are just meant to be held in tax-sheltered accounts and should never see the light of day in taxable accounts. PIMCO Real Estate Real Return Strategy
The Insurmountable Hurdle!
The SEC is apparently taking a closer look at fees to see if there are some that unacceptably high. Here are a few that are murder on your wallet: Embarcadero Absolute Return