Investing in Mutual Funds

Investing Theories

The late Will Rogers said it best.

"I'm more concerned about the return of my money than with the return on my money". ~Will Rogers

In Trading and Investing there are more theories, plans, stock pickers, investment vehicles, gimmicks, scams, and Snake Oil Salesmen than any time in the past.

There are crazy people on TV pushing buttons that make all sorts of goofy noises to tell you whether to buy or sell. However, the sceptics that keep up with those wonderful investment tips claim they are a miserable failure.

Some think you might as well throw darts at a financial newspaper to reveal the investment of choice.

There are others who claim a certain amount of success by having a chimpanzee pick which stocks to buy while holding a Financial News Journal.

There are companies that develop software for computers to trade for you. It’s so easy! And you’ve seen it on TV, so it ‘must’ be true!

There are Financial Advisors that work out of the trunk or their car canvassing your neighbourhood looking for anyone with a dollar to invest.

There are Investment Representatives working phone banks cold calling anyone brave enough to answer in search of the next sale.

No wonder so many believe they are safe to just put their money in a Mutual Fund and forget about it. At least you have an excuse when you answer the phone or the door; you can tell the salesperson, “Sorry, I already have an investment”.

Mutual Funds

Mutual Funds are one of the most popular ways to invest. They desperately want to manage your money for you. Besides, they all have Fund managers, researchers, Analysts, Salespeople, secretaries, offices, and high-rises. They must know what there’re doing, right? But who pays for all of that? Yes, you, the investor.

When you invest in a Mutual Fund, you are likely paying a fee upfront, which will immediately decrease the amount of your investment. Then you will only make money on your investment if the Fund increases in value over and above the amount necessary to pay the continuing fees to support all the personnel and other expenses involved.

Do Mutual Funds really make money?

Some do, many don’t.

• 75% of Funds with a 1 star rating in 2005 were wiped out during the past 5 years.
• There were 650 funds with Growth in their names that actually shrunk over the past decade.
• 7. 54% of funds with the word Plus in their names have underperformed over the past five years.

According to Morningstar who rates Mutual Funds as to their performance:

The bottom line:

Group average total return updated daily:

• 10,971 Mutual Funds 5 year total return = 2.87
• 13,534 Mutual Funds 3 year total return = - 2.70
• 15,942 Mutual Funds Year to Date return = 6.51

Point is, in order to make an informed decision you must look at a performance history of the Fund. A long-term history will show you how the Fund actually performed during good times and bad.

Before investing in any Mutual Fund:

• Do your homework.
• Never rely on a Salesman for Investment Advice.
• Demand to see a performance of the past 5 years, and the past 10 years. See how the fund performed in times of recession.

Look at it logically. How is the performance of a Mutual Fund Rated? The performance of the S&P 500 Index is used as the Industry Standard Benchmark to gauge the performance of Mutual Funds.

Therefore if a Mutual Fund outperforms the S&P 500, then it is considered to be performing well. And obviously, underperforming the S&P 500 would be considered ‘Not doing so well’.

So realistically, if your Mutual Fund strives to beat the performance of the S&P 500, why not just invest your money in the S&P 500 index by buying shares of SPY? In doing so, you avoid paying fees to a ‘Fund’, Investment Firm, Fund Manager, etc. You would have a well diversified investment, comprised of 500 of the biggest and best companies in the country. And the only fees you would pay would be a commission for the trade.

Do yourself and your family a favor. Take the time to learn about Investing. Charting and Technical Analysis is an excellent place to start. Your financial future depends on it. It’s not difficult and it’s not time consuming. It can save your investments.