This is a simple explanation of the method used to calculate the losses to the average American family's mutual fund holdings, over 5 years, from two types of the mutual funds fraud.


Mutual funds (not including those in retirement accounts) make up 12.2% of all families financial assets











In the US, 18% of families have mutual fund accounts (outside of retirement accounts).












Consider family with income in middle quintile (that in the 40%-60% range)






$40,300 average income

66% own their home






Imputed average mutual fund holding of middle quintile






Reported average mutual funds holding in 2001(from SCF 2001)






   Figure complile from direct holdings plus half of tax deferred retirement accounts



Estimted costs to typical family over 5 years:






Sum of brokerage overchanges, dilution from market timing and transactions costs from market timing



Estimates taken from Bullard, Zitzewitz, and Greene-Hodges














Brokerage overchanges averaged




per year



Dilution costs per year







Related costs (transaction cost)







Estimated return on S&P over 5 years from Mar 1996 to Mar 2001






Net return after costs of dilution and transactions







S&P gain

S&P less costs






Holdings in 1996

Holdings in 1991






















Losses from "market timing" alone






































Compounding equation for cell D27






     This equation compounds the loss from the brokerage overcharge and the loss of 0.28% return for each


     of the five years.































Compounding equation from D30