Mutual Funds

There was a time when mutual funds were a great choice for investors to expand their portfolios and keep wealth safely.

Now one must be vigilant and research their funds thoroughly before purchasing, as these popular investment vehicles are beginning to lose their shine.

Mutual funds have become weighted by fees and about 75% of them under perform the stock market.

Ian McDonald, wrote in an article for the Wall Street Journal, “trading commissions can rival or even exceed a funds expense ratio if a fund trades heavily.”

The average mutual fund charges 1.54% annually in management fees, fees subtracted directly from your return. (Source: Morningstar 2004).

Tim Middleton, a writer for MSN money said, "Get your money out now and invest where management isn’t selling out its investors. The industry is awash in high fees and there is no excuse to entrust your money to crooks.”

If your mutual fund is out performing the market, then the management fees are justifiable.

However, it doesn't make much sense to be paying management fees on an investment vehicle that is under performing the market as a whole.

Despite some of these negative aspects, I would still include "specific" mutual funds in my overall investment strategy.

Mutual Funds are an investment that pools the capital of many investors together and purchases a diversified portfolio of different securities. Each shareholder absorbs gains or losses in the fund.

There are Two Types of Fund Categories:

1.) Closed-End: If you want to purchase a piece of the fund, you have to purchase an existing share, as there are only a limited number created.

2.) Open-End: An unlimited number of shares are created based upon demand.

They can be further Classified:

1.) Equity

2.) Fixed-Income

3.) Money Market

Many Financial Advisors recommennd investing in these funds because it allows an individual to diversify at a lesser cost than if they were to do it on their own.

There are literally hundreds of different types of funds that can be purchased.

It is recommended to purchase No-Load funds, if possible. Simply stated, this means you can buy or sell shares without any sales charge or broker commission. Whereas, a Load fund charges you an initial sales fee, generally between 4% to 8%.

On an overall basis, it is much less risky to invest in mutual funds than it is an individual stock, however, I would advise looking into a DRIP Plan or ETF's first.

Mutual Fund Recommendations

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I will always give full disclosure if I own any stock that I am recommending.

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