I’m a member of bank that you may or may not know. It is an exclusive bank typically only available to the military… USAA. I am eligible for member because my wife is in the military. (If you are not in the military, please don’t give up on this article.) USAA is one of my favorite banks. The customer service far surpasses anything I’ve previously experienced with a bank. For basic savings and checking accounts, I don’t think they can be beat.
However… for investing… let’s just say that I don’t have any investments under their management. When I last looked at their brokerage commissions they were not competitive. Their mutual funds didn’t seem to be any better than Vanguard or Fidelity. Or are they? Recently they sent us a letter about their mutual funds. Here were the selling points of a group of funds… something to keep in mind here is that the rankings below are not explained (in any way I can tell from the marketing material)
- USAA Tax Exempt Intermediate Term Bond Fund (USATX) – That mouth-full of a mutual fund seems to have ranked 1 out 157 funds over the last year… it is 11 of 74 over the last ten-years. Impressive, but I’m not sure how many people consider tax-exempt intermediate term bonds as a core holding.
- USAA Money Market Fund (USAXX) – This performed 2 out of 296 funds in the last year and 14 out of 202 in the ten years… which is impressive again, but as we know money market funds don’t perform well. The marketing material doesn’t say how much better it is than the average, but I’m guessing you would have earned a few dollars at most.
- USAA Balance Strategy Fund (USBSX) – This placed 4th of 506 fund in the last year… but over the last ten years it is just 63 of 148. A balanced fund is something that doesn’t typically garner much interest from the market. I like to think that most of my readers can balance their own portfolio without looking at this middle of the road option.
I found all the above really interesting, but it was the fund on its whole page that got my attention. USAA happens to have the Top-Performing Fund of the Decade (at least at the time of the mailing) and they more than happy to tell the world about it. What is that fund? Glad you asked… It is the USAA Precious Metals and Minerals Fund. That fund has averaged 24.44% over the last ten-years… a great return for anyone who invested.
My concern here is that USAA is marketing the “hot fund.” In my opinion, and in the opinion of many smart finance gurus, precious metals and minerals should not necessarily be a core holding. These gurus are smart, not educated from an online school, or full of BS. I think most financial experts would rather see their clients invest in a mix of US and International stocks and bonds. It is troubling that they are marketing this very niche mutual fund, but more troubling is its performance since it’s inception… and it’s expense ratio. Since August of 1984 the mutual fund has returned 7.47%… with a ginormous expense ratio of 1.31%.
I’m not saying that marketing mutual funds is wrong… but I think this is a clear case of caveat emptor. This looks to me to be a specialty fund with a high expense ratio and I wouldn’t count on it to perform for over the long haul.
I’d wish USAA would dial back the marketing and not promote, “USAA has the #1 Performing Fund of the Decade.” I imagine more than a few soldiers will be suckered in by this only to get in a mutual fund that might not be the best fit for their financial situation.
I would be very leary of a precious metals fund right now. But, I don’t blame USAA from promoting it like crazy. Having the high performer is a huge selling point.
When it comes to mutual funds, performance is everything. It brings in new customers, deposits and management fees. Everything else just looks good in the prospectus.
it’s not any different than other mutual fund companies promoting their funds, so I’m not sure the problem here. With that said, soldiers aren’t any different than anyone else, and they ought to do their due diligence in USAA funds as they would in any other fund. past performance is no indication of future performance. also, is it wise to buy precious metals when they are at all time high?
their funds aren’t the best performing and not the cheapest expense ratios, although their index funds are reasonable. with that said, the price of entry into their funds is cheap with no minimums if you automatically invest. you can build up then transfer to another fund family once you have requisite minimums for the other fund family if you want to.
usaa tax exempt mmf was rocking until the fed decided to give money away for free, so mmf rates suck right now.
I hold USAA a cut above any other financial institution. After all, they send us a check back at the end of the year if there’s a surplus in their insurance department.