Saturday, June 10, 2006

The Problem With Mutual Funds

We can describe the major problem of investing in mutual funds with just one speculation rule.

No one cares more about your future than you.

A mutual fund manager will run their mutual fund with one goal in mind -
their income.

Yes their future income is enhanced if they can create higher returns and so grow the fund, but they have outs if they don't succeed with your money - you just lose.

survivability is the name of the game for the mutual funds themselves. They can take risks to grow, and if those risks hurt the fund, they can play games and hide the losses.

If a fund family has one hundred funds, and ten of them beat the averages, these mutual funds will draw most of the new investment dollars. Those that lose will not be closed - their investors will be transferred into the "successful" mutual funds - the losing funds thus disappear from statistics. New mutual funds will be created to replace those that were absorbed - hoping the new ones beat the odds and the markets.

There are other games to be played - but taking risks with your money for short term gains - while telling you there is safety in a long term investment approach - is where most their profits originate.

Mutual fund investments are very risky because they seem very safe.

All investment is dangerous, big or small, managed investment or self directed speculation. All investment has layered risks, some visible -- some hidden.

As Shrek might have said, "Mutual fund investments are like onions. Of course some of them stink and can make you cry - but that's not the point." There are layers of expenses, dangers, and bureaucracy to be peeled back before considering investing in a mutual fund.

To speculate is to acknowledge investment risk and try to manage the dangers. To blindly follow an
investment plan is trusting others to protect your assets -- rather than consistently profit themselves.

Any bureaucracy
always seeks to insure its continued existence before it deals fairly with its constituents.

There are tools, asset management software and online advice, that will help you
take control of your own finances.

Read some good books on investment and keep your money out of the markets until you know how to let profits run and cut losses short. Keeping your money in cash is also a form of investment - and at times a much better strategy than mutual fund investing.

No one cares more about your money than you -- unless they intend to take some of your money.



Anonymous Anonymous said...

i found your blog while looking for investment tips and i have to say that you present a new side..i agree, no one cares more about my money than me..and i need to look carefully into investing before i make that leap. thanks for the advice.

10:30 AM  

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