Investing in Mutual Funds? You Might as Well Throw Your Money Out the Window

11 Mar

Most of you probably have some semblance of an investment account, whether that be and IRA or 401K. If not, you should open one. Check About’s site for more information. I’m going to assume these accounts of yours are losing a lot of money right now. If not, I want to see your portfolio! On average, retirement accounts are down at least 20% from 2008. However, you may want to check your account to see if you are investing in mutual funds. What are they? Well, in short they are “professionally managed type of collective investment schemes that pools money from many investors and invests it in stocks, bonds, short-term money market instruments, and/or other securities” – Wiki’s definition, not mine.

What they forget to tell you about mutual funds is that they are basically stock plans that are bound to do worse than the stock mark index and will charge you fees on top of it. In 2008, most funds, even the top rated funds had terrible returns. For more see the NYT article. What many people don’t know about their mutual fund is how often and when they will be charged fees. And since everything is in one retirement account, which is already under a fee schedule, it can be hard to account for.

To start, if you have a mutual fund look up everything you can regarding its fee structure and performance. My advice, sell the fund and trade it for an index fund. Index funds are not actively managed but automatically track the stock market so they by default have lower fees. [For more info check About’s site.] Even the best mutual fund managers have trouble beating the index fund and you will be bound to see a greater return on your investment with one. Sure the market is terrible right now, but it will get better and by ridding yourself of mutual funds, you can maximize your investments now.

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