if better then Why?? NO. Absolutely not.
Mutual funds are not good and you should not invest in mutual funds unless you have to (like if it were a requirement in a 401K).
Here's why.
First of all, mutual funds exist to take average person's money.
Second, mutual funds seem to be "happy" just to do better than the S&P index, since that's often the gauge. A monkey, yes monkey, can usually outpick most mutual funds.
Third, mutual funds have embedded management fees in their costs. Most of these mgmt fees are 0.5% to 2% annually.
Fourth, most mutual funds exist not to earn you a lot of money, but are more interested in not "losing" you lots of money.
Fifth, mutual funds are not as liquid as one might think. If you're in mutual funds and a Bush talks in the morning and you call your broker to sell because the market is now tanking, the broker will gladly take your order, but the order will not be executed until the day is over and the negative impact is already priced into the fund.
Sixth, many mutual funds charge extra "fees" if you buy/sell their fund within a certain amount of time, meaning you must keep your money in the fund 90 days to 2 yrs before you're free from the fees (read the fine print on trying to get a withdrawal). These fees can be up to 3% or so of your money as well.
Seventh, mutual funds have to be in the market. So if the market is crashing or going down like it has between May and now, then the funds still have to be in the market and taking those losses too. With some practice, you can time your monies to avoid some of those losses (it'll take practice).
Convniced yet? Need more?
Eighth, mutual funds have to be pretty diversified and so if there are hot and cold sectors, they are probably in both the hot sectors and cold sectors. However, as an investor, you can buy into just the sectors you want, like metals, or housing, or energy, etc.
Ninth, mutual funds are so big, they can only invest in certain companies. A small mutual fund with $10 billion in assets. 1% of that money is $100 million. How many companies are this big where $100 million investment isn't the whole company? Do you want to limit yourself to just those larger companies like microsoft, at&t, home depot, cisco, ebay which have been sideways for years? I think not.
A better way would be to buy ETFs (exchange traded funds) or holders. These trade like stocks, so are very liquid, and do not have the fees like the mutual funds. Further, you can buy/sell them as you wish. They represent sectors or indexes, so buying them gives you the same diversification as the sector/industry/index, but without the extra overhead!
See amex.com for more info (american stock exchange) or ishares.com, holders.com
You need to invest for yourself. If you can't, then sure, use mutual funds. But be aware of the shortcomings (and as you can see, there are many). Best of luck!
Let me know if you have further questions. read tips on investing, stocks and mutual funds that will help you on this site yes and no.
Lets talk about yes first.
1. for small investors they provide diversification for a small investment. That is something that a small investor can achieve on his own. And all investors should be diversified.
2. unlike purchasing stocks there is no transaction cost for no load funds.
3. there is a wide selection to choose from--thousands.
4. for people who do not wish to take the time to evaluate and study individual stock they offer a less time consuming method
Now lets talk about the no.
1. 70% of mutual funds under perform the market in general so one must be somewhat selective
2. they are not tax efficient. The tend to buy and sell securitities repeatedly and all realized gains are distributed at year end for which one must pay taxes.
3. they charge a management fee and expenses that for some can be very expensive, as much as 2% of assets per year. The average is 1.5%. Some do charge less than 1%. I agree with every thing that, Yada Yada Yada. But if you want growth, stick with the stocks.
http://finance.yahoo.com/q/bc?t=5y&s=QQQ...
Even the so called ETF funds can lose vaule, so stick with the leaders and you will be OK. perhaps you can try forex. which is also excellent way for you to invest.
The FOREX or Foreign Exchange market is the largest financial market in the world, with an volume of more than $1.5 trillion daily, dealing in currencies. Unlike other financial markets, the Forex market has no physical location, no central exchange. It operates through an electronic network of banks, corporations and individuals trading one currency for another.
try forex from here:
http://www.bernanke.cn/easy-forex/
Good Luck && Wish you make a fortune! |
