How Do Mutual Fund Companies Profit?

How are mutual fund companies able to earn investment return above industry average? What are their strategies? Do they buy and hold for many years without speculation? Or do they speculate excessively? I have no idea. I just thought that if I know their strategies I might be able to earn as much return on my own.

Their strategies are outlined in their prospectus. They arent going to explain exactly what it is because they dont want everyone else copying it, especially if it works. If everyone copied it the strategy would stop working anyway.

usually quite well especially if the are a mix of stocks and bonds like a vanguard fund

The answer is yes they do....... Seriously... every mutual fund has a prospectus that outlines the level of risk they take. In addition, Morningstar goes into deeper levels as far as how long they hold positions etc.

There are simply different trading styles. Different types of stocks (value, growth, Large Cap, Mid Cap, Small Cap, International, REITS, ETF's, Penny Stocks) etc.

Take some time. Learn Read. You'll find what's best for you.

BTW: We find holding stocks with a good "asset allocation" is the best answer for us. We have 50% in ETF;s, 25% in individual stocks & 25% in Mutual Funds.

I'm not sure where you got your facts -- but they are wrong. On average Mutual Funds do not make a return above the average -- at least not when you account for risk. This is well documented in the academic literature.

On the other part of your question, in many cases mutual fund companies profit by charging mangement fees for the service they provide managing your invested money. Even if the fund loses value they are still charging fees for assets under management in many cases.

About 70% of mutual funds have returns below the market average. Some studies suggest an even higher percentage. There are several reasons for this. One reason is that mutual funds charge a management fee of about 1.5% on average. So whatever the market return is, their return on average to their investors is going to be about 1.5% less. Another reason is that many mutual funds have portfolios that are in the billions of dollars. How would you like to have to manage a billion dollars worth of investments and attempt to beat the market averages? Almost impossible. Mutual funds and other institutional investors are the market. We individual investors are just picking up crumbs that fall to the floor.

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