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| The average rate of redemption of assets over the last five years is 25% per year |
Summer is almost here, which means more outdoor activities like beach parties and swimming. No, this isn't another story about how to lose those last few pounds to improve your look in a swimsuit.
Instead, we are comparing strategies to build a sandcastle and grow a mutual fund.
This comparison was first developed by Bob Auer, president of the SBAuer Funds, in April when he heard interesting data from a presenter at our annual SunStar Conference for Fund Entrepreneurs Conference.
This comparison was first developed by Bob Auer, president of the SBAuer Funds, in April when he heard interesting data from a presenter at our annual SunStar Conference for Fund Entrepreneurs Conference.
Consider this:
Sandcastles require strategy, patience, and persistence. Though the materials involved are very basic – sand and water – the correct mixture of each element is crucial to building a durable sculpture. Selecting a spot on the beach to build your sandcastle is equally as important because you need moist sand to hold the proper form, but you don’t want it too close to the water or the high tide and waves rushing in will wash away all your hard work. Even so, over time, this is exactly what nature will do. So, you need to continue adding sand and fortifying your castle as wind, waves and weather erode your castle.
Sandcastles require strategy, patience, and persistence. Though the materials involved are very basic – sand and water – the correct mixture of each element is crucial to building a durable sculpture. Selecting a spot on the beach to build your sandcastle is equally as important because you need moist sand to hold the proper form, but you don’t want it too close to the water or the high tide and waves rushing in will wash away all your hard work. Even so, over time, this is exactly what nature will do. So, you need to continue adding sand and fortifying your castle as wind, waves and weather erode your castle.
The same is true if you manage a mutual fund. According to the Investment Company Institute, the average rate of redemption of assets over the last five years is 25% per year; slightly higher for taxable bond funds than equities in general. And, if you’re losing 25% a year…well, just do the math. That doesn’t bode well for the sustainability of your mutual fund. The assets you have today erode through natural attrition such as:
- Need the money,
- Chase the hot sectors,
- Rebalance, or
- Like change.
Click here for ideas on how to attract steady flows into your funds.
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