The mutual fund business is huge, commanding an 87% market share of American’s investment assets, according to the Investment Company Institute 2016 Fact Book.
However, there is one investment that is far superior to mutual funds. And most folks are completely overlooking this investment.
It makes sense. Investors have the majority of their assets in retirement accounts, using 401k and IRA accounts.
Plan sponsors prefer to use open-end mutual funds, which have grown to a $16.3 trillion business. But there is one major problem with mutual funds that is completely overlooked:
The price you pay for mutual fund shares ALWAYS reflects the current market price.
Let me explain. Mutual funds are priced once per day, after the close of the financial markets. The share price of the fund is simply a reflection of the value of all of the assets.
If the stocks or bonds in the fund rise by 1%, the fund’s share price rises 1%. If the value of those underlying investments drops by 2%, the fund’s share price is adjusted lower by 2%.
That means it’s IMPOSSIBLE to find an undervalued mutual fund. It maybe time to sell mutual funds.
Here’s the good news. There is a special type of investment that I call millionaire cash machines.
In many ways, they’re similar to mutual funds. They can invest in just about ANYTHING – including corporate bonds, blue chip stocks, tax-free income investments, gold, energy stocks, and international equities.
Yet unlike mutual funds, their share price never reflects the actual value of the investments.
Sometimes these millionaire cash machines trade at a premium to the value of their investments. And at other times, they can trade at a deep discount (sometimes as much as 20% to 40%).
This is how Mario Gabelli, one of the most renowned value investors, describes the benefit: “Computers calculate the price at which you can buy or sell mutual funds, while the temperamental Mr. Market (supply and demand) determines the prices of [millionaire cash machines.]”
One additional benefit is that these special investments tend to be income-focused.
Yields are typically 2x – 5x MORE than you’d earn in dividends from the SPDR S&P 500 (NYSE: SPY) index fund or the 10-Year U.S. Treasury. And occasionally, special situations present a chance to earn more than 20% income payouts.
Should you SELL mutual funds in your portfolio, and replace them with this special investment? Of course, that’s your own decision to make.
Gabelli acknowledges that most investors will continue to overlook these investments:
“The more democratic nature and the daily “marked to market” pricing of mutual funds will very likely continue to appeal to the majority of investors. However, those willing to tolerate the vagaries of market-driven pricing for [millionaire cash machines] should enjoy the long-term benefits of the funds’ structure, giving fixed-income managers the ability to enhance yield and equity managers more flexibility to buy cheap and sell dear.”
Only 3% of Americans are investing in this special investment. Let me show you exactly how these investments work, so you’re completely informed.
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