BUZ LIVINGSTON: Monarchs, mutual funds, and warning signs

Published: Sunday, September 29, 2013 at 03:35 PM.

The cool early morning breezes mean autumn is around the corner signaling the annual Monarch butterfly migration — at long last, non-obnoxious tourists. For eons, Monarch butterflies have made the Canada to Mexico trek, long before man walked erect. My late aunt Mary, bearing an LSU Entomology Ph.D., once told me insects would outlast homo-sapiens. 

The bright colors Monarchs sport are not merely decorative; rather their stunning hues are a byproduct of a toxin they carry. Milkweed is a host plant for caterpillars but the caterpillars are unaffected by the poison found in milkweed. When the caterpillars metamorphose into Monarch butterflies, the toxin persists. If birds, mice and other predators sample the bitterness once, they instinctively avoid Monarchs.

Mutual funds, like Monarchs, have toxic signs, too. 

Unlike the butterflies, these performance-robbing poisons were hidden for many years. In the last decade or so, mutual fund companies have been required to clearly disclose fees, spelling out costs in plain English.   Variable annuities and their even more-heinous cousin Equity-Indexed Annuities, aka Fixed Income Annuities, still are allowed to be sold without annual fee disclosures.

George W. Bush’s Security and Exchange Commission had Equity-Indexed Annuities on a deathwatch but Congress rescued them. Investors can thank Sen. Tom Harkin (D-Iowa) for parachuting language in the Dodd-Frank bill resuscitating Equity Indexed Annuities.  

Back to warning signs and mutual funds: Actively managed mutual funds have higher annual costs than their passively managed counterparts. Actively managed funds charge .75 to 1.25 percent annually above passively managed funds.

The higher costs are like the distinctive colors of our fluttering friends, the Monarchs. Investors, like predators in the wild, should use high costs as a danger signal to stay away.

1 2 3

Reader comments posted to this article may be published in our print edition. All rights reserved. This copyrighted material may not be re-published without permission. Links are encouraged.

▲ Return to Top

Local Faves