The Goldman Touch: Worth the Price?
Mutual funds let you play with the big leaguers at Goldman. But evidence shows the costs may outweigh the rewards

No name on Wall Street conjures market smarts and the riches they bring like Goldman Sachs. So getting close to Goldman is a temptation many individual investors would fall for, if only because for its first 130 years, the firm saved itself primarily for such big institutional clients as Ford and Microsoft.

Until now. More and more individuals are gaining access to the firm's investment ideas and trading prowess via mutual funds. In 1996, Goldman sold a handful of funds through two primary distributors. Today, 44 funds managed by Goldman are available via 750 outlets, including E*Trade Group, where you can point and click your way into the tent shared by primo market savant Abby Joseph Cohen.

Just don't look to get in cheap. As you'd expect from Goldman's reputation, its funds come at premium prices, with relatively high annual fees plus sales charges that begin at 5.5% and fall to zero for $1 million-plus accounts. The loads and fees apply whether you use a broker or buy direct.

What does this get you? ''The goal is consistent, above-benchmark returns, net of fees and adjusted for risk,'' says David Ford, co-head of Goldman Sachs Asset Management. Setting Goldman apart in pursuit of that grail, Ford told me, are its storied strength in global investment research, as well as proprietary risk-management software that can be cranked up to divide a portfolio among all the world's financial assets for optimal return at minimal risk.

Sounds good. And while that refrain is one you can hear any hour of any day all along Wall Street, I won't gainsay the potential of Goldman's acumen. Goldman didn't become Goldman by losing clients' money. Since 1981, for example, private accounts run in a way similar to its brand-new Strategic Growth Fund beat the Standard & Poor's 500-stock index in 14 of 18 years--good for an average edge of more than three percentage points a year.

Just the same, in the short lives of most Goldman funds, the evidence of benchmark-beating, risk-adjusted returns is mixed. ''Given Goldman's resources,'' Morningstar analyst Dan Kobussen says, ''you'd think they'd come up with something more impressive.'' By Morningstar's reckoning, just 7 of the 15 Goldman funds that are at least three years old beat benchmarks after accounting for risk. Among the winners: the Capital Growth and International Equity funds, plus Goldman Sachs Global Income. Its asset allocation funds also are off to a good start.

So are Goldman's funds worth your attention? Yes, if you've already budgeted for a broker's advice. If not, they would add a lot to your investment costs. Those higher costs create an effective bet that Goldman can translate what works at lower cost for its big-money clients into sharply above-average returns for you.

COMPARE. To quantify that gamble, I used a neat tool at this Web site: There you'll find the Securities & Exchange Commission's Mutual Fund Cost Calculator, which lets you compare what one or more funds would return, given different costs, holding periods, and expected annual returns. I assumed a $500,000, five-year investment, and chose a fund that figures to benefit from many of the firm's resources: Goldman Sachs Growth and Income Strategy Portfolio, a global asset allocation fund with 60% of its money in stocks and 40% in bonds. Against it, I pitted the comparable, but cheaper TIAA-CREF Managed Allocation Fund. Finally, I assumed the TIAA-CREF fund would return only the historic average of 9.8% a year for 60% stock, 40% bond portfolios.

Assuming the Goldman fund beats the historic average by one percentage point a year, the gamble on Goldman would fail, leaving an investor $19,179 poorer. If Goldman's market smarts add two percentage points annually, the bet would pay, but at steep odds: $59,475 in higher costs to pocket an extra $15,896.

Can you resist those odds? I can, too.

Questions? Comments? E-mail or fax (407) 728-1711


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The Goldman Touch: Worth the Price?

TABLE: The Goldman Gamble

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